Farmland Review 201718

Farmland REVIEW 2017/18

• Review of 2017 • Outlook for the year ahead • Farm finance options • Machinery auctions

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Welcome to the latest edition of our Farmland Review With our agricultural industry facing so many challenges over the forthcoming years, it is imperative for our farmers and landowners to take a progressive and realistic view of their future businesses objectives. Farmland itself can be found at the core of almost all farming business and will usually dictate how such a business can move forward, the options available, and what level of risk is acceptable.

In this edition we look back on what was a rather turbulent 2017, and consider the various events that have driven farmland values.

We include commentary on several complex and high-profile sales from our agents around the UK, showcasing our market strength and our ability to secure outstanding results for our clients in what can be a challenging marketplace.

We look ahead to the rest of the year with an ever more watchful eye on the economic and political influences that have overshadowed the farmland market in recent years. Predictions and opinions are provided throughout and we would welcome your thoughts on these.

I hope you enjoy our Farmland Review. Please do get in touch if we can assist you in 2018.

Richard Gadd National Country Agency Team 07966 481487 richard.gadd@fishergerman.co.uk

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Farmland Review 2017/18

A review of 2017 Values continued to widen between the poorer and better-quality land across most of the country, with higher quality commercial farmland retaining a stable price level. Average values experienced some downward pressure and guide prices for farms coming to the market are now starting to reflect this movement. Average grade 3 arable land is now selling at between £8,500 and £8,750 per acre across the Midland and the Northern Counties. Grassland values appear to have softened again, averaging around £6,500 to £7,000 per acre.

These average values masked some incredibly strong results and the variation in values cannot be understated. In 2017 we traded arable land with vacant possession at £16,000 per acre in the Midland

Uncertainty and hesitation ascended further on the back of various economic, political and financial events throughout 2017. We look back on a turbulent and challenging year in the farmland market.

counties. Conversely, there were some rather poor results recorded for lower quality grassland holdings further north at around £4,000 per acre. Average values are fast becoming an unreliable benchmark for market commentary due to the significant variations in values achieved across Great Britain.

The supply of land to the market last year remained low in historic terms. We experienced a restricted supply of land coming to the market in the first six months of 2017. July through to October saw a significant increase in acreage marketed. The general election result probably calmed the fears of some vendors and resulted in the marketing of numerous farms that had been held back in the first half of the year.

Buyers remained conscious of the ever-widening market and showed caution when placing offers. Backed up by a raft of political and economic forces, this made for a somewhat challenging year and some slow sales as a result.

It is worth noting that the number of buyers with cash funds from development land sales did increase through 2017 and are representing an increasing proportion of purchasers.

Most vendors were selling for re-investment purposes or following retirement. Debt was another and increasing reason for sale in 2017.

Below I have chosen three key areas/ events that had a real impact on the market in 2017.

INTEREST RATES - Although anticipated, the increase itself (the first in 10 years) raised concerns for some buyers. Longer-term investment clients and those buying for the next generation have been considering extended fixed rate lending options or increased stress testing levels. Serviceability of any debt must be a priority for all agricultural businesses, with due consideration given to likely reductions in subsidies in the short term. We saw many buyers pushing forwards with land purchases having secured longer term fixed rate mortgages, on what are still historically low levels of interest.

BREXIT – With clarity over the post Brexit position remaining unclear, many farmers have continued to take a pragmatic approach to future subsidy income. With a reasonable reduction in payments likely after 2022, and a weighting towards more environmental schemes, farmers have been thinking ahead and making changes to ensure their businesses can adapt to a world with reduced support. 2017 saw many of our clients considering their future land requirements, with many bucking the market trend and deciding to acquire further acres to spread costs.

GLYPHOSATE VOTE – Welcomed by many, the licence renewal will apply for five years. That said, based on the ever-widening pressure against its use from some EU countries, it’s next renewal may not be as certain. Whilst the vote did not appear to have a direct impact on land values, we did see several buyers take additional advice on land productivity in the event of a future ban on use.

David Merton 07770 333331 | david.merton@fishergerman.co.uk

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CASE STUDY 1

A sale of national importance Geographically fragmented in 13 locations across the county, the Herefordshire Council Farms Estate sale was a 1698 hectare (4195 acre) portfolio of rural property. Stretching from the Malvern Hills in the east across the river meadows of the River Wye to the Golden Valley in west Herefordshire, the holdings each had a character of their own drawn from location and size. Undoubtedly the challenges for us came from marketing such a diverse vacant and tenanted portfolio, satisfying the futures of the incumbent tenants, and appealing to the wider market of farming family and agribusiness buyers.

Understanding the tenants’ ambitions to buy their own holdings, surrender their tenancy, retire, or continue their farming business under a new landlord, was the first task. With that knowledge we were able to master plan the sale and subdivide the estate into 59 lots creating an appealing mix of property guided at circa £38m. Over 200 bids seem to suggest that we tantalised the market.

By risk profiling the sale we analysed Government policy, the economy and markets, and weather patterns resulting in a sale launch in May 2017.

Nothing and no one, including our Government sources, prepared us for Mrs May calling a general election four weeks into the marketing campaign, and next time perhaps we will analyse the irrational as well as the rational!

The Fisher German team was a match for the diversity of the whole portfolio drawn from valuation experts, planning specialists, building and mineral surveyors, and agribusiness consultants.

A marketing team managed the sale campaign with innovative brochures and an online document data room. Viewing representatives were recruited from the rural community and supported by an in-house agency team to manage over 600 viewings completed in only 9 weeks.

Weekly client meetings were supported by statistical data which showed, for example, over 15,000 ‘website hits’ within the first week of marketing. This gave vital market intelligence to manage the sale campaign, and offers accelerated as the July deadline approached.

Collating over 200 offers for individual and combinations of lots was managed electronically to identify the optimum sale solution. At this stage in the process we were grappling with the Council’s objectives of meeting sale targets, achieving the disposal of the whole estate, judging buyer reliability, matching market demand with tenant ambitions, and the impact of sales on the wider rural and farming communities.

Ultimately formulating a well-designed plan and delivering to a strict timetable with a team offering contrasting but complementary professional skills in a transparent style gave us results which exceeded our wildest dreams, and the outcome has been very rewarding.

Anthony Mayell 07836 646472 | anthony.mayell@fishergerman.co.uk

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Farmland Review 2017/18

Farm finance

Whilst there has been concentration upon the future of farming subsidy, agriculture has been strengthened in the short term by the weaker pound helping arable farmers whilst livestock farmers saw a short-term reduction in price competition from foreign suppliers.

From farm accounts we see the industry is starting to settle out into three bands.

At the top end, businesses have taken action and are now looking to invest either in the purchase of additional land, the expansion of their farming operation by contract or other means, investment into fixed equipment to deliver greater efficiency or diversification into alternative enterprises or to add value.

In other businesses farmers continue to do what they have always done, reduce cost where possible, rely upon family labour and continue to produce on a low input, low output basis. For some this is a practical and viable route to their future.

reduction of debt. It may also be the time to look at this as part of a restructure in the business as part of succession and planning for the future.

It is perhaps the middle sector of the industry that will find it the most difficult to adapt to the future as generally they have high fixed costs, high cost of finance from investments made at a time when interest rates were higher or the need to reinvest when returns are falling.

At Fisher German we have longstanding relationships with lenders to the agricultural industry at all levels and sectors. Loan to value may not be the issue, affordability is the criteria upon which a credit team will sanction the loan. We understand the criteria against which they will assess a loan and we are well-versed in presenting cases in a way to assist a credit team evaluate your proposal.

Restructuring financial arrangements can significantly reduce annual interest and charges, either through borrowing on longer term loan, adopting fixed rates or structured

Whether you are investing for the future or you wish to reduce your finance costs at Fisher German we are able to assist your decision by introducing you to a number of lending institutions and facilitating the process.

Charles Meynell 07836 212307 | charles.meynell@fishergerman.co.uk

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A small selection of farms we sold in 2017 SOLD

SOLD

SSTC

Middle Aston, Oxfordshire

Skeffington, Leicestershire

Horncastle, Lincolnshire

A 325 acre arable farm

About 267 acres of arable and pasture land

A well-positioned 483 acre arable farm

SOLD

SOLD

SOLD

Steetley, Nottinghamshire

Alvechurch, Worcestershire

Fromes Hill, Ledbury

About 74 acres of grade 2 arable land

About 155 acres with commercial premises

Residential mixed 181 acre farm in the hills of the Leadon valley

SOLD

SOLD

SOLD

Win Hill, Derbyshire

Glewstone, Ross-on-Wye

Church Broughton, Derbyshire

About 612 acres of moorland and grassland

Well-equipped 110 acre dairy and stock farm

A well-positioned 161 acre dairy farm

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Farmland Review 2017/18

Our predictions for the year ahead:

The 2018 land market

• M ore cash entering the market from development land sales looking for rollover opportunities.

• B uyers will become increasingly cautious over quality and longer-term security.

• F urther constriction on average values across the country.

• U ncertainty will continue to dampen some buyers appetites.

Brexit negotiations, specifically the details of any trade agreements we settle with the EU, are going to be key to market performance in 2018.

Some clarity on this issue, in addition to guidance on how any domestic support for farmers will be established and distributed, are awaited with anticipation.

With the value of the pound likely to improve from the lows of late 2017, future subsidy payments up to 2022 will likely decrease and farmers should ensure this is set against future expectations.

A probable further interest rate rise in 2018 will increase borrowing costs and raise some caution with those buyers reliant on bank lending. With downward pressure on agricultural incomes, and a likely reduction in subsidies post 2022, logic dictates the

main lenders will start to show some signs of nervousness.

longer-term inheritance tax benefits provide a welcomed wealth shelter.

We have seen demand increase over recent years from farmer buyers, with cheaper borrowing, the inherent desire to own more land and from increased development activity leading to windfall gains. We expect this trend to continue albeit at a slower pace as uncertainty looks set to continue overshadowing the market.

We have reconsidered our forecasts for the supply of land to the market and suggest there is likely to be a small increase on 2017 levels.

Interest from non-farming investors, lifestyle buyers and those with sporting interests has generally softened in recent years. We expect some renewed interest from non-farming investors who have noted the general softening in values, perhaps seeing a more aligned risk vs reward offering, and a chance to diversify their investment portfolios. Furthermore, the

I expect the number of retirement and debt related sales to increase along with several non-farming investors and institutions continuing to withdraw and re-invest capital from this sector.

Some will re-invest into strategic land holdings, with most moving into alternative asset classes.

Richard Gadd 07966 481487 | richard.gadd@fishergerman.co.uk

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Farm machinery auctions

Whether it be retirement, business re-organisation, or simply surplus stock, the on-site auction remains an effective way of disposing of farm plant and machinery quickly and efficiently whilst providing complete transparency.

Selling items of machinery individually can be a time-consuming process.

However, a machinery auction is a much quicker and simpler method of sale. Farm auctions provide an opportunity to discard of unwanted and surplus equipment in one fell swoop. Larger more valuable items create exposure and interest which then benefits the sale of smaller lots.

Buyers will often attend an auction with the intention of buying a

particular item, but then on the day discover other items also of value to them, adding to the bidding activity.

The auction will take place at a designated time, in front of a crowd of potential private and trade buyers. Our auctions are advertised widely, ensuring equipment has the widest possible coverage to the market, this in turn ensures true market value is achieved.

Fisher German have vast experience in arranging sales and selling machinery at auction. In the last five years, we have sold over ÂŁ2.5 million of farm machinery nationally. We have the benefit of portable offices, specialist on-site computer systems, and dedicated professional staff on hand to deal with any queries or issues.

Our farm machinery auction team works very closely with our regional and national farm agency teams and can provide a service bespoke to individual businesses requirements, ensuring a seamless transition between the land or farm sale and the machinery sale.

Our connections and expertise with farm sales also gives us unrivalled knowledge to value farm machinery on behalf of clients for more formal valuation purposes.

If you have farm machinery that you wish to dispose of, or machinery to be valued, please contact Sam Skinner or Jack Healy, we will be delighted to advise on your options.

Sam Skinner 07810 378188 | sam.skinner@fishergerman.co.uk

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Farmland Review 2017/18

CASE STUDY 2

Adding value Warren Farm, Middle Aston, Oxfordshire

Displaying the range of services we can offer to clients is one of our keys points of difference, which has been epitomised by acting on behalf of the Preston family for over 20 years which culminated in the sale of their main holding in the Summer of 2017. The property, Warren Farm, has been in the same family for over 60 years and the historic involvement with the Fisher German Banbury office goes back many years. Advice in the early days included obtaining a Certificate of Existing Lawful Use on an agriculturally tied house as well as undertaking tax valuations following change of ownerships after a death in the family.

More recently, our planning team have obtained a Certificate of Existing Lawful Use for a former agricultural building now in commercial use whilst also putting forward some strategic land on the edge of the village for possible residential development consideration.

from a wide range of potential purchasers showing continued strength in the agricultural property market when the right property comes available.

The client has been delighted with the outcome of the sale and has endorsed Fisher German’s involvement throughout.

With the retirement of the share farmer in 2017 the plan was always going to be to dispose of the main holding which comprises a four bedroom farmhouse, two cottages, buildings and circa 325 acres of predominantly arable land. A significant consideration to the timing of any sale was the construction of a major new Thames Water pipeline through the middle of the farm.

Incidentally the pipeline was a scheme which Fisher German was also managing the construction of.

Whilst working with the utilities team to understand the timings for the new water main, the farm was offered to the open market for sale as a whole or in 4 lots in April 2017. After competitive bidding a sale was quickly agreed which completed in Autumn 2017 for well in excess of the ÂŁ4.225 million guide price. The property attracted significant interest

Following the successful sale, the valuation team has also recently been instructed to carry out a full Capital Gains Tax valuation of the holding.

How did we do?

Matthew Allen and everyone at Banbury helped make selling our family farm (for the last 62 years) as stress free as possible. We are very grateful.

Janet and Evelyn Preston

Matthew Allen 07810 378190 | matthew.allen@fishergerman.co.uk

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CASE STUDY 3

The value of local knowledge Offering a block of quality grade 2 limestone land to the market in North Nottinghamshire was always going to result in a competitive sale.

The land at Steetley near Worksop, being some 74 acres of productive arable land, raised some debate in-house about how best to seize the opportunity to capitalise on very strong local demand.

We considered a sensible guide price for the land, but with historically limited supply of land locally and with numerous ‘rollover’ buyers in the vicinity there was little to suppress the potential value in our view. We decided not to publish a guide price in the knowledge that demand was far outstripping supply and any guide

price set would likely be exceeded on the back of some premium prices being paid for private sales in the area. Indeed, a similar parcel of land in South Yorkshire had exceeded its guide price by over 30% a few months earlier, with many buyers questioning the relevance of such a guide considering the final sale value achieved.

individuals who we had specifically targeted as known buyers, reiterating the value of local market knowledge.

Next, we came to the method of sale. With the comfort of strong local demand and with the certainty that we would have plenty of well-funded buyers, we chose to offer the land for sale by Informal Tender. This would ensure a fixed marketing timeframe in line with the clients wishes, with the opportunity for all buyers to fully consider their position and ensure a fair and transparent testing of the market. This choice was further supported by the fact that little could be negotiated in terms of lotting, separate access arrangements and overage, thus the usual Private Treaty process was unlikely to offer any advantage.

Looking back, local market knowledge and specific targeting of known buyers really helped to achieve maximum value for our clients. As anticipated, local demand was the recurring theme throughout the sale.

Advertising was limited to local publications with a national ‘online’ presence only to ensure the very best use of our marketing budget. This ensured a national presence without the cost of a printed advertisement.

Sale particulars were distributed and targeted at known local buyers in addition to those who enquired from our online and local marketing drive.

In excess of five offers were received by the tender deadline, following the six-week marketing period. All of these offers came from those

Offers were opened following the tender deadline with all offers surpassing our client’s expectations.

One offer was accepted immediately, and the sale was seen through to completion.

With the land market becoming ever more parochial, it is essential to understand who your potential buyers are before marketing. Many small and medium sized farms are purchased by adjacent or local buyers, generally within a few miles of the target property. Knowing the local buyers in each region and keeping up to date with their requirements puts us ahead of many other agents when selling land and farms.

The success of this sale clearly exemplifies that local knowledge and careful consideration to the most appropriate method of sale were fundamental in surpassing client expectations.

Jack Healy 07551 152689 | jack.healy@fishergerman.co.uk

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Farm agency contacts...

1 Ben Longstaff Ashby de la Zouch 07917 064657 ben.longstaff@fishergerman.co.uk

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Matthew Allen Banbury 07810 378190 matthew.allen@fishergerman.co.uk

3 Sam Skinner Bedford 07810 378188 sam.skinner@fishergerman.co.uk

3 Molly Dickson Bedford 07741 264143 molly.dickson@fishergerman.co.uk

4 Ed Clark Chester 07718 524819 edward.clark@fishergerman.co.uk

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6 Anthony Mayell Hereford 07836 646472 anthony.mayell@fishergerman.co.uk

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6 Nicola Hopkins Hereford 07584 705003 nicola.hopkins@fishergerman.co.uk

Richard Gadd National Country Agency Team 07966 481487 richard.gadd@fishergerman.co.uk

tephen Rutledge S Thame 07919 693401 stephen.rutledge@fishergerman.co.uk

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7 Hugh Maxfield Knutsford 07788 144709 hugh.maxfield@fishergerman.co.uk

Isabel Bingham Thame 07817 565647 isabel.bingham@fishergerman.co.uk

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8 illiam Young W Market Harborough 07810 378192 william.young@fishergerman.co.uk

atthew Barker M Worcester 07788 412186 matthew.barker@fishergerman.co.uk

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9 obert Hurst R Newark 07501 720419 robert.hurst@fishergerman.co.uk

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Tim Shuldham Doncaster 07785 267944 tim.shuldham@fishergerman.co.uk

Charles Meynell Stafford 07836 212307 charles.meynell@fishergerman.co.uk

Holly Parry North Yorkshire 07501 720416 holly.parry@fishergerman.co.uk

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Rachel Ashworth Newark 07855 077152 rachel.ashworth@fishergerman.co.uk

Stuart Flint National Country Agency Team 07501 720422 stuart.flint@fishergerman.co.uk

Gillian Pattinson Northumberland 07584 685696 gillian.pattinson@fishergerman.co.uk

Alasdair Dunne National Country Agency Team 07501 720412 alasdair.dunne@fishergerman.co.uk

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