Opinion: Commodities and farmland prices
- Credit: Archant
OLIVER HOLLOWAY, partner at Clarke and Simpson, gives his view on the land market
Clarke and Simpson operates at the forefront of the East Anglian land market and we have seen further strong capital growth throughout the year. We have seen land values quadruple in the past 10 years and rise in the region of 10% during 2014.
Conversely, we have seen great fluctuations in farm gate prices since about 2007 with prices going from undulations to frantic peaks and troughs. In the past few months, farmers have seen breathtaking drops in commodity prices and which have affected all sectors; beef prices are 25% less than in the previous year and a tonne of wheat is now worth less than half what is was two years ago. As a result, we are now being regularly asked if the fall in commodity process will result in a stabilisation or potential drop in farmland values going forward.
Although there is no doubt that weakening commodity prices are likely to have an impact on farm profits and cash flows, the availability of farmland remains at a historic low and we are still seeing very strong demand for good quality blocks of land with the very best sales achieving in excess of £12,000 an acre. This has been proven by the sale and purchase of some 2,000 acres, which Clarke & Simpson has been involved with in recent weeks.
In addition to a limited supply, we continue to experience historically low interest rates and taxation advantages - primarily being the introduction of Entrepreneurs’ Relief and continuing Inheritance Tax advantages through Agricultural Property Relief and Business Property Relief. Whilst in place, these vitally important factors will help reinforce demand, particularly from investors, who would not benefit from many of these taxation advantages if they were to invest in other use classes. In fact, their primary motive is often not income generation from farming and therefore, the drop in commodity prices will have limited impact on them; many of these investors now have improved knowledge of farming systems and are looking for opportunities where they can increase agricultural productivity and other returns rather than just purchasing land let under long term tenancies.
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In summary, it is our opinion that although the weakened commodity prices may cause apprehension from some in the short term, the land market remains diverse with value growth driven by a diminishing land supply and significant advantages over other use classes.
Contact Oliver on 01728 621200 or email: firstname.lastname@example.org
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