Boris woes, farmland bull run, happy Christmas

A stonking by-election defeat and rebellious mutterings from his MPs in the House of Commons would not have been top of Boris Johnson’s Christmas list. But by-elections are notoriously bad barometers of future voting intentions, and despite the Conservatives falling out of favour with farmers, according to a new poll, they are still more popular than any other party by some margin. However, after a year when many farmers and rural businesses have felt marginalised by the race to secure new trade deals or the net zero debate, 2022 could be the year where policymakers need to start listening a bit more closely to their rural constituents who, after all, perform the not inconsequential role of feeding the nation. I hope you manage to have a relaxing Christmas break. The Rural Update will be back in the New Year.

Do get in touch if we can help in any way

Andrew Shirley, Head of Rural Research

In this week’s update:

• Commodity markets – Pork prices blot 2021 upward trend
• Politics – Farmers cooler on Conservatives
• Land prices - Agricultural land values set to rise in 2021
• Finance – Cheap money still available, despite base rate rise
• The Rural Report – Sign up to watch our ground-breaking video
• Overseas news – US land values rocket

Commodity markets – Pork prices blot 2021 upward trend

For my final commodity update of the year I have looked back at how prices have performed over the past 12 months. In general, markets have proved resilient in the face of the ongoing Covid-19 pandemic and largely seem to have shrugged off the impact of Brexit. Those who proved that you can still grow oilseed rape in the UK (whether by skill or luck) have seen stellar rises, while lamb values have also surged.

However, the pork sector has not been so lucky with Covid and Brexit hammering UK processing capacity. Although Defra minister George Eustice hit back last week, blaming processors for not taking advantage of new EU worker schemes. It is also worth noting that the second-largest increase in our table was an almost 50% hike in the cost of red diesel. Other input costs like fertiliser and feed have followed suit (not to mention a large slice of BPS payments) so it is gross margins that will reveal 2021’s true financial picture for farmers, not headline commodity prices.

Politics – Farmers cooler on Conservatives

If you are a farmer or rural business thinking of raising a burning issue with your MP and hoping for a receptive audience, now might be the time to do it. Having seen its huge majority in the Shropshire seat of former Defra minister Owen Patterson obliterated by the Lib Dems in a by-election last week, a Farmers Weekly survey also reveals farmers are losing faith in the government. Last year, the magazine’s annual sentiment survey revealed 72% of respondents would vote Conservative if there was an election tomorrow. This year the figure has dropped to 57%.

Land prices – Agricultural land values set to rise in 2021

The provisional results of the Knight Frank Farmland Index suggest that the average price of farmland in England and Wales rose during 2021 at the fastest rate seen for some years. More detailed analysis will be published in the New Year. Please email me for more details.

Finance – Cheap money still available, despite base rate rise

The Bank of England surprised a number of commentators by not nudging up the base rate as expected in November. Last week it took the opposite course of action – putting in place a modest rise that many had, off the back of economic uncertainty caused by the Omicron variant, predicted would not come until the New Year. However, my colleague Rachel Barnett from Knight Frank Finance has the following words of comfort for borrowers:

“Anyone on a variable rate will feel a small rate rise, but 0.15% is still very small in absolute terms and lenders still have money to lend at historically low rates. The rate rise is only noteworthy because it’s a rate rise per se - people can still borrow at fantastic rates, well below historic norms and I’d expect to see borrowing rates at well below 2% for some time to come.

“Additionally, I doubt banks will pass on the rate rise to depositors by way of increased rates, certainly not immediately, as most banks have very strong liquidity. So if clients still feel they can use some relatively cheap leverage as a way to enhance their businesses they should do so.”

For more information on the best rates available for farms and estates, please contact Rachel

This year’s edition of The Rural Report, our unique publication for rural landowners and their advisors, launched last month with a video highlighting some of its key content around the topic of ESG. If you missed it, you can sign up to watch on demand at your leisure. It was a lot of fun making it and includes a thought provoking interview on diversity, with Wilfred Emmanuel-Jones AKA The Black Farmer. I think you’ll find it both entertaining and informative.

Sign up to watch The Rural Report launch video

Overseas news – US land values rocket

The average value of farmland in Iowa, one of the US’s breadbasket states, rose by 29% in 2021 to hit almost US$10,000/acre, according to the latest research from Iowa State University. The hike was the largest since 2011 when values rose by over 30%. High commodity prices and ad-hoc Covid-19 support packages are behind the rises, say researchers. However, land prices are still lower than in 2012 and 2013 taking into account inflation, they add.

Photo by Vicky Yu on Unsplash