Swedish wood, Nutrient neutrality, Borrowing costs

There is a lot for farmers and estate owners to think about at the moment. As discussed below, those borrowing on variable rates have some big decisions to make, while this year’s annual post-harvest planning discussions will be even more complex than normal given the rising disparity between input and output costs. All against the backdrop of incoherent government policy on everything from energy to trade. It’s going to be extremely interesting to see how our next Prime Minster, looking increasingly likely to be Liz Truss, rises to the challenge and what their approach to food and farming will be.

Do get in touch if we can help in any way

Andrew Shirley, Head of Rural Research

In this week’s update:

• Commodity markets – Grains pressure continues
• Tory leadership campaign – All change at Defra?
• Inflation – Farm costs outrunning commodity prices
• Environmental stewardship – Five-year extensions
• Interest rates – Sub 5% long-term deals still available
• Nutrient neutrality – Court case removes uncertainty
• Drought – Defra relaxes stewardship grazing rules
• Rewilding – New funding available
• Overseas news – Swedish wood and German wind

Commodity markets – Grains pressure continues

Downward pressure on rape seed and wheat prices continues to grow off the back of bumper harvests and the resumption of Black Sea grain shipments. London wheat futures fell to their lowest level last week for almost five months after the USDA increased its estimate for world wheat production by 8 million tonnes. If correct, this would deliver a record-breaking global harvest of almost 780 million tonnes. A total of 25 boats carrying over 620,000 tonnes of grain has now set sail from the Black Sea following the Turkish-brokered blockade-lifting agreement between Russia and Ukraine. Ukrainian officials now reckon 3 million tonnes of grain could be exported during September. Oilseed rape prices are now back to their pre-invasion levels following good harvests around the world, and trader Frontier says “there appears to be little justification for any increase in prices”.

Tory leadership campaign – All change at Defra?

Defra minister George Eustice will be probably be packing his bags soon after openly criticising Tory leadership front runner Liz Truss.

Speaking at a Conservative Environment Network event, Mr Eustice, who is backing Rishi Sunak, said the Foreign Secretary had not taken animal welfare into consideration sufficiently when negotiating the recent free trade deal with Australia. However, eco-campaigner and junior Defra minister Zac Goldsmith said he was happy with Ms Truss’s environmental credentials and was behind her leadership bid.

Meanwhile, Ms Truss has been blasted by the NFU for failing to attend a hustings event on Friday where Mr Sunak took questions on his approach to food and farming if he were to unexpectedly win over Tory party members at the last minute. She has, however, belatedly responded to the NFU’s open letter to the leadership hopefuls promising less red tape and measures to boost productivity.

Inflation – Farm costs outrunning commodity prices

The cost of living surged by 10.1% last month, according to the latest inflation figures from the Office of National Statistics. The jump was the highest for forty years and was primarily driven, says the ONS, by rising food and drink costs, in particular bread, cereals, milk, cheese and eggs.

However, new agflation figures from agri-business consultant Andersons reveal that the rise in agricultural commodity prices that has helped inflate the cost of food has been outstripped by the spiralling cost of farm inputs, particularly in the livestock sector.

The firm’s July estimates put Agflation at 23.5% annually, more than double that of agricultural outputs (10.1%). “It becomes apparent that there is a cost of farming squeeze taking place,” says the report. “If farmers are unable to get higher prices for their outputs, many will be severely squeezed in the months ahead. Difficult decisions will need to be made on cropping and enterprise viability.”

Environmental stewardship – Five-year extensions up for grabs

Estates and farms participating in environmental stewardship schemes will now be able from 2023 to extend them for five-years instead of annually. However, those extending Higher Level Stewardship (HLS) agreements will be able to leave early if they decide to join another environmental scheme like Countryside Stewardship. Tom Heathcote, our Head of Agri-consultancy, welcomes the move, but suggests participants review their agreements as if “starting afresh” before renewing to ensure they are still fit for purpose.

Interest rates – Sub 5% long-term deals still available

Despite the recent hikes in the Bank of England base rate, farm and estate owners can still access attractive long-term borrowing rates, according to Bradley Smith, a rural specialist at Knight Frank Finance. “For a good 15-year fixed deal there are still rates of under 5% available.”

For those looking for shorter-term debt, five-year interest-only deals are available for 1.6% plus the Bank of England base rate, which is currently sitting at 1.75% after this month’s increase of 0.5 percentage points – the largest single jump in 27 years.

However, further rises are expected, with some economists claiming the base rate even needs to hit 4% by the end of 2023 to help get inflation back under control. “Now would definitely be a good time to think about fixing your debt,” points out Bradley.

Read here for more of Bradley’s thoughts on the market.

Nutrient neutrality – Court case removes uncertainty

I’ve written recently in the past about the nutrient neutrality regulations that are hampering housebuilding in many parts of the UK, but developers will be relieved at least by a recent ruling by the Court of Appeal.

This handy synopsis by Michelmores contains all the details, but the case hinged around a campaign by a local residents’ group to have the planning consent for a development overturned on the basis that the nutrient neutrality budget for the eight-house development in the catchment area of the Solent and Southampton Water Special Protection Area was not sufficiently rigorous. The residents questioned the budget’s assumption that each house would be occupied by the national average of 2.4 people along with maximum daily water usage of 110 litres per person with a 20% precautionary buffer then applied.

The judgement gets pretty technical, but basically agrees that under the circumstances it was OK for the council to use the above assumptions when granting consent.

Drought – Defra relaxes stewardship grazing rules

Farmers will be now allowed to graze animals on land being used for certain agri-environment schemes, according to a Defra announcement last week. The derogation, which will remain in place until the end of the year, is in response to the lack of traditional fodder caused by drought conditions across much of the UK.

Rewilding – New funding available

Environmental group Rewilding Britain has just opened the next round of funding for those looking to investigate the possibility of starting a rewilding project or extending an existing one. Grants of up to £15,000 are available and applications close on 22 October.

Overseas news – Swedish wood and German wind

During my summer break I spotted a few things that once again made me question government energy policies. While in Sweden, I was told that firewood prices had trebled with homeowners stockpiling logs in anticipation of electricity rationing during the winter. The country has a surplus of hydropower in the mountainous north, but lacks the grid capacity to send it to the flatter south. It has also reduced over the years the amount of power generated by its nuclear power stations.

On the drive home via the west coast of Germany I was staggered by the number of existing and under-construction wind turbines sprouting forest like from the productive-looking arable land. On the one hand it made me wonder if we are missing a trick in the East of England, but on the other, given that Germany is still facing an energy crisis, I had to question how many more of the things would need to be built to really help wean the country off imported fossil fuels?