Despite recent gales and torrential rain and the country looking and feeling like a sponge, believe it or not, parts of England remain in underlying drought. Times look somewhat better for our beef and sheep producers in 2012. The drought in South America has impacted on markets for maize (and hence wheat), soya and hence oilseed rape. Prices have risen in the short term, but profit-taking by institutional investors appears to be reducing the impact. Farm and Country Finance will continue to support the farming and rural communities in the year ahead with its offering of sources of farm finance.

Happy New Year!

If you would like to discuss any of the issues in this month’s news, please contact us at Farm and Country Finance

Beef

In terms of total cow numbers, the milk herd is in decline and has been for some years and there is a stable or even slightly larger specialist suckler herd. As over half of UK beef is derived from the dairy herd, total supply in the UK is more likely to decline than increase. This is exacerbated by the cost of production with feed prices unlikely to fall significantly, at least until next harvest. Accordingly, beef finishers are unlikely to grow beasts to big weights to compensate for lower numbers in the system.

This is Olympic year with an influx of likely visitors wanting to sample the national fayre be it in fast or traditional guise. The demand cannot be met from domestic supply, so imports will be required to fill the gap. A deal with the so-called Mercosur trading block in South America would open the EU market to greater supplies from that continent, but it looks unlikely to be agreed in 2012. While supplies of cheap beef may eventually arrive in the UK, production costs in South America are rising and, by the time any deal is agreed, world prices may rise closer to EU prices which would limit the impact of cheap imports.

 Dairy

At least for the first several months of the New Year, prospects for ex-farm milk prices appear reasonable. Whilst butter and skimmed milk powder prices fell towards the end of last year, cheese and cream values are currently stable.

There is a relatively short supply of milk, at least until the spring when cows are turned out onto plentiful new grass.

Through 2011, farm gate milk prices rose from around 24p per litre to 27p. As retailers maintained their margins, it was inevitable that processors took the brunt with processor margins expected to fall further in the first half of 2012, due to the retailers’ battle for market share, while processors are unable to force down raw prices because of strong commodity markets.

Pigs

Spot values decreased by around 10 pence per kilogram early in 2012 as demand dropped off after Christmas and the Euro weakened against sterling, making access to the UK market easier for EU producers. Given that sheep and beef prices are likely to remain high this could play into the hands of the pig industry in the medium term. Unit costs of sow production have been reducing in the last few months. The ban on dry sow stalls is already in place over here and will come into force across the remainder of the EU in 2013. As usual, there will be those of our continental ‘friends’ that will be less willing to comply than we are, but this should still reduce the number of producers and hence supply.

Pork remains a staple in the Chinese diet and China has agreed to open its doors to British exports, which is good news if we can meet their inspection criteria. Promotion of British pigs and meat is set to increase by the British Pig Executive using the Olympic Games and its alleged party mood to create a global shop window.

 Sheep

There seems to be plenty of good news, at least as far as prices go, for sheep farmers.

Generally prices for sheep meat were high throughout 2011. Encouraged by good prices for cull ewes, some producers took out not just the older ones, without lambs, but some that might have been kept for the following year, for another chance to produce. This increased total meat supply but conversely some flock owners have decided, because of the continuing high prices, to keep more ewe lambs back for breeding down the line, thus reducing lamb supply through autumn.

Over all EBLEX is forecasting sheep meat production in the UK to be broadly similar in 2012 to that in 2011. Much now depends on conditions at lambing time.

Global demand for sheep meat remains strong and supplies limited. All pretty good news but in the medium term the UK industry should be careful not to shoot itself in the foot by scaling up production too quickly. Production costs and the likelihood of lower payments from the Single Payment Scheme should be taken into account.

 Eggs

The British Egg Industry Council has estimated that British egg producers have invested £400 million to meet EU legislation which came into force on 1 January 2012. It also suggests that in at least ten other EU countries the ban has not been fully complied with, claiming that around 25% of EU cage egg production will be illegal. HM Government has refused to impose a ban on the import of illegal battery eggs suggesting that to do so would be an illegal act under EU law – no surprises there then.

It is the case, however, that British producers are not facing new competition since eggs from the now errant sources have been available historically. But there is the usual moral wrong in this case, that being that our compliant producers are faced with a lack of protection where they have made the investment required and look to their egg sales to pay for it. It would seem that the BEIC has embarked on the first stage towards launching Judicial Review proceedings by formally writing to Defra to challenge the UK Government on its refusal to ban imports of illegally produced battery eggs and egg products.

It is understood that The British Free Range Egg Producers Association suggests that chick placements to produce poults, for egg production in the UK, were down by around 7 percent in July 2011, compared with the prior year, which should result in the number of young birds available to replenish the laying flock reducing through into 2012. Whilst in overall flock numbers this may not be high, it is hoped that it might translate into a significant drop in the number of laying birds and contribute to a rebalancing of egg supply and demand and helping to restore prices.

Wheat

The continuing drought in South America is likely to reduce maize (corn) and soya bean crops in Argentina and Brazil.  Consequently, USA corn prices jumped £25 per tonne at one stage, pushing feed wheat values higher, resulting in UK feed wheat rising back to around £150 per tonne from £140 in early to mid December. Prices are now sliding back, as some traders take profits.

 Oilseed Rape

 Crop values have resisted downward pressure from Australian imports which was a feature of the pre-Christmas market. Values jumped in the early days of the New Year close to £360 per tonne but profit-taking by commodity traders has since taken these down hence the spot market is again towards the mid £340s per tonne

The continuing problems in the Eurozone continue to weaken values for next harvest, which have now slipped under £320 per tonne.

Barley

Barley prices remain firm. Feed barley is no longer selling at a premium over wheat, though it is still tracking at wheat levels in most parts of the country. The malting barley market remains tight across Europe, resulting in buying scrambles where loads a rejected on quality.

World supply and demand of malting barley is close in a ‘usual’ year; whilst beer consumption in western Europe is in decline, it is increasing in the rest of the World and with increasing affluence comes greater demand. The tight supply and higher prices in Europe have attracted interest from abroad and it is rumoured that as much as half a million tonnes may be coming from South America, despite the drought. When it arrives it could take the spike off UK prices, so farmers may well decide to sell their remaining crop, not contracted forward, rather than taking the risk of storing a perishable commodity.

Beet

The sugar beet harvest continues in the seasonally wet field conditions, and yields of both raw roots and sugar remain pleasing. Despite the recent monsoon, parts of eastern England are experiencing the most arid year for almost a century and water replenishment is not yet at a rate sufficient to maintain supplies for irrigation in the summer.   

Growers of roots may yet have to think about cropping plans to match thirsty plants with available water supplies.

Potatoes

Spot sales values appear similar to a month ago at circa £90 per tonne, while the Weekly Average Price is likely also to be similar to last month at circa £105, compared with values closer to £170 per tonne a year ago.

The mild weather continues to affect storage conditions. The balance between the suppression of tuber sprouting with cold temperatures, without adversity in sugar content and fry colour of potatoes destined for crisps or chips, remains a real issue for some. According to the Potato Council’s December report, crisps and frozen chips account for almost twenty percent of potato consumption in the UK. There is an indication that we continue to pay more for convenience rather than peeling and cooking.

After the turkey, the trimmings, the beverages and all the excess, the New Year will be upon us with yet more excess. Perhaps, then, one or two of you might be thinking of joining a gym.

If joining a gym is on your New Year resolutions list, make sure you read the small print of the contract before signing up.

In March this year, the Office of Fair Trading (OFT) commenced proceedings against a company called AMS, which draws up membership contracts and collects payments for several hundred smaller gyms. The contracts had minimum membership terms of 1-3 years but many members stopped using the gym after only a short time, some finding that their circumstances had changed meaning they couldn’t continue their membership. However, AMS would not allow contracts to be cancelled before the end of the minimum period and if a member defaulted on payment, they faced the reality of their credit rating being damaged. Cases referred to the credit reference agencies have apparently run into several thousand.

This action went to the High Court, which has  found that, in some gym memberships, the terms are unfair and therefore unenforceable. The contracts were ruled unfair in several respects and some cases should not have been referred to credit reference agencies.

So think twice before signing a gym membership contract ; read the small print on the contract and if in doubt, seek legal advice. Or use a gym that offers services where you pay as you go, which would avoid any nasty surprises. Bear in mind that contract disputes can be expensive.

It is very important to keep your credit file tip top if raising farm finance is on your agenda and it might be surprising how a little blip can make a difference.

 We are receiving a number of enquiries from customers looking for finance for renewable energy projects, especially finance for solar panels. We are finding that these are often ‘sold’ with statistics that show that the project ought to be a ‘no brainer’, in terms of a return on investment. As ever, it is important to get the right advice and we can point customers in the direction of specialist firms that deal with the planning and implementation of renewable energy projects.

 The importance of the financial viability, of a renewable energy project, cannot be over emphasised. It is with this in mind that anyone considering a renewable energy project should carefully consider the government’s Comprehensive Feed in Tariff review, which has started with Solar PV technology. The Department of Environment and Climate Change has announced the first phase of this review which relates only to Solar PV.  No announcements for other technologies has been made, but they will come.

 With a consultation response date of 23rd December, after the proposed tariff eligibility cut-off date of 12 December 2011, it is felt unlikely that any responses will change the government’s position on the revised rates. 

The main things to consider are:

• A proposed reduction of more than 50% in Solar PV generation tariffs from 1st April 2012, for schemes installed and commissioned on or after the 12th December 2011. This will mean that schemes installed and commissioned before the 12th December 2011 will receive the existing FIT rates for the scheme’s duration, 25 years. Schemes installed and commissioned after 12th December 2011 will receive existing FIT rates until the 1st April 2012 and thereafter the revised tariff
• A proposed new multi-installation tariff rate structure for aggregated solar PV schemes from 1st April 2012 for installations commissioned on or after the 1st April 2012. This might affect companies or individuals looking to benefit from the installation of multiple Solar PV installations on separate buildings or sites, as they will no longer benefit from the FIT rate being determined by the total installed capacity at each site. Rather the FIT rate will be determined on the aggregate capacity installed across their portfolio.
•  It is proposed that eligibility for Solar PV FIT  is to be dependent on energy efficiency performance criteria on or after the 1st April 2012. Applicants will need to demonstrate they meet certain energy efficiency criteria.  For example the property where the scheme is installed must have a Energy Performance Certificate (EPC) rating at level C or above.

 As said, the review should be carefully considered by any person or organisation considering a renewable energy project.

 The views in this article are those of the writer and should not be taken as advice or a substitute for advice. We recommend that specialist advice should be obtained before entering into a renewable energy project. For a copy of the review please click the following link.

http://www.decc.gov.uk/assets/decc/11/consultation/fits-comp-review-p1/3364-fits-scheme-consultation-doc.pdf

We have been receiving a number of enquiries about farm bridging finance. Some of these have come from farmers who are sitting tenants, wanting to buy their farm from a landlord. For example, the Duchy of Lancaster has been selling off a lot of land in 2011. Often there is a huge gain to be had from a sitting tenant buying their property, because  they can do so at a substantial discount.

However, the mission is fraught with danger unless you deal with a firm that handles things ethically. What we find is that often our potential customers have made similar enquiries of one of our competitors, who says it is the market leader in the provision of ‘opportunity’ finance and makes out that, because we are brokers, their service is better when our evidence shows just how much money we saved one of our customers, Mr and Mrs R of Ceredigion who had been to our competitor to begin with and did not feel comfortable. What people tell us is that they are told, by this competitor, that they should take a bridging loan for six months after which they will have found replacement long-term finance for them. When we examine some of these cases, it is patently obvious that the farm often cannot sustain the loan in the longer-term and that the customer should never be told that such finance is available.  Whislt it is likely that the ultimate paperwork, from the competitor, will say that finance is not guaranteed (doubtless to avoid liability), often this will come when the customer has been hooked. After all, if long-term finance is what is required, why have a bridging loan to begin with? Just because the perception is one that a bridging loan is faster does not justify this and if our competitor is as good as it says it is, it should be able to demonstrate long-term availability on day one, or at least quickly thereafter, and in any event before customers are committed.

We know that we lose business on the basis of the fundamental need to tell the truth by not indulging in misrepresentation. Often, a bridging loan is the right solution on the basis that the farm can be bought at a discount and then sold off in part or full, which realises the potential gain to the customer, but by knowing the truth, our customers can get on with marketing their property rather than hanging around waiting for long-term finance that is never going to materialise. We would never tell a customer that replacement farm finance is available when we know or ought to know that it is not. We are aware that this is sometimes not what our customers want to hear. But if the truth hurts then the pain will be far less than it will be than if our customers get to the end of the bridging loan and have no replacement finance. We know, for we are sometimes asked to tidy the mess up, often without success because the only option is a full or part sale that should have been evident and obvious right from the start. As a result, these customers suffer the stress and the hassle of dealing with our competitor that is only interested in its own coffers. Often customers have not started any marketing, under some false impression that replacement finance was being arranged for them. Now we wonder how that might have formed that impression?

Please have a look at our case study in relation to a Mr and Mrs R of Ceredigion at  www.farmandcountryfinance.co.uk/case_studies.html#22 where our competitor had been initially involved. From this you will see that the customer was told precisely what their position was by us, could make sale arrangements accordingly and successfully sold and realised their profit. Not only that, we saved them a bucket load of cash and arranged the loan over a longer period which would have given them greater flexibility had they not sold earlier. The result was happiness all ways round which is just the way it should be.

So, the message is simply - beware of Greeks bearing gifts. The regulators don’t seem too keen to get involved in helping business people who ought to know better – and indeed they ought to if they are told the truth. That is what you’ll get from Farm and Country Finance.

Not surprisingly, we are getting a number of enquiries for finance for renewable energy projects. Whilst we get some enquiries for finance for anaerobic digestion plants (where the investment is higher) most enquiries are for finance for wind turbines or finance for solar panels.

A recent  announcement by the Department for Energy and Climate Change (DECC)  could spell progress for some on-farm anaerobic digestion projects, but the news might not be so good for small to medium solar electricty schemes.

The promised uplift to small-scale biogas tariffs, which resulted from the 2011 ’fast-track’ Feed-In Tariffs review, should have been implemented on August 1st, however, the increase was conditional on EU state aid approval. Accordingly, progress was held up for two months by the European Commission, which has now approved the new tariffs.

 The changes to the generation tariffs take effect automatically, and will apply to  installations with an eligibility date from 30 September 2011. These are as follows:

• Anaerobic digestion plants up to 250 kilowatts – 14p/kWh, representing a 16% increase over the previous 2011-12 tariff of 12.1p/kWh.
• Anaerobic digestion plants 250-500 kilowatts – 13p/kWh, representing a 7% increase over the previous 2011-12 tariff of 12.1p/kWh.

Whilst this announcement will help to progress some marginal on-farm projects a spokeman from the National Farmers Union has suggested that the new tariffs alone are not likely to result in the rapid growth needed to deliver multiple environmental benefits. The spokeman went on to say that the NFU has heard about the possibility of another big cut to the future levels of solar PV tariffs, to take place sooner than the anticipated reduction FITs planned for April 2012. The uptake of solar electricity this year has exceeded previous government predictions and budget pressures could result in drastic reductions to tariff rates earlier than expected. It is anticipated that this might hit the small to medium scale projects i.e. under 50 kilowatts.

It is therefore important to seek professional advice before emabarking on this type of project.

Back at the beginning of August this year we published our post ‘Call us and save £70,000.’

This explained a lot about farm finance and especially bridging finance for a farm. We compared the way we handled this case with the way another company handled it and the savings we created. We said that the other company had changed the term bridging finance to opportunity finance – there are opportunities out there, that’s for sure, though we believe that our customers should take advantage of the opportunities they find and not the arrangers of finance. This means ensuring that any finance is truly in their best interests, which comes about by being honest and trustworthy served with a dollop of integrity.

We can now happily report the start of a happy end to the story. Our customers, who bought the farm hugely discounted because of their tenancy, have realised their profit by selling the farm for more than they thought possible at the best part of £1.4m realising their profit and some. What we had told them, in all honesty, was that refinance was not possible and that they should enter into the short-term farm finance on a presumption that the farm must be sold. As a consequence, they acted with complete enthusiasm in the sale and did not hang around on some false promise that refinance might be available. They knew what they needed to do and got on with it in exactly the straightforward way we knew they would, because they needed to know exactly what their options were, without embellishment, which is precisely part of the service they received from us.

It was great to get back from a staycation to find this news on the desk – to add value to another’s lot, to create something for them and earn our corn at the same time gives us a great buzz.

Choices are often not simple but one thing is certain – when arranging farm finance of any kind it is important to talk to someone who you can trust. The proof of the pudding is, as ever, in the eating. Are our customers happy? - we don’t need to answer the question.

According to the most recent Land Market Survey by the Royal Institue of Chartered Surveyors, farmland prices reached an all time high in the first half of 2011 with an estimated average price of a shade over £6,000 per acre.

Demand is far outsripping supply – 50% of respondents to the survey reported increases in demand largely driven by commercial farmers looking to expand their production because of high commodity prices. Land availability increased for the first time in three years, although these increases were not enough to keep pace with the growing level of demand. 

 All areas of the UK experienced rising farmland prices, with the exception of the North West and Wales, where prices dropped a little, though farmland in these areas was also the most expensive, with  prices of almost £7,000 an acre in the North West and £6,500 per acre in Wales.

Given that demand outsrips supply, it is expected that the rising trend will continue into 2012 with the strongest growth being in the commercial farmland market, as opposed to the residential sector where there is also keen demand for amenity land.

This evidence is supported by our own enquiries from prospective buyers; enquiries for mortgages for land and loans for land have increased and the asking prices for land are also increasing. We are seeing increases in enquiries across the whole of our range which includes farm mortgages, farm finance, farm loans through to equestrian finance. On top of this, many of our enquiries are from potental buyers for small amounts of land where the property has an agricultural tie. Demand for farms, farmland and rural property is set to increase and the prices are likely to reflect this increased demand.

Looting a Poundland or stealing water – our riot idiots have nothing on these demi-wits mainly from across the pond. 

These apparently true stories make some of our rioters look positively Einstein next to the feckless persons contained in them. Please enjoy these little anecdotes though bear in mind, whilst doing so, that these people can bear progeny and presumambly vote in their own countries!

1. California – during a hold-up in Long Beach, would-be robber James Elliot’s .38 revolver failed to fire at his intended victim. Accordingly, he peered down the barrel and tried the trigger again. This time it worked – goodbye.

2. Switzerland – an insurance company smelled a rat when the chef at a hotel lost a finger in a meat cutting machine and submitted a claim. The company sent out one of its men to have a look for himself. He tried the machine and he also lost a finger.

3. Chicago – having shovelled snow for an hour to clear a space for his car, a man returned with his vehicle to find a woman had taken the space – he shot her.

4. Zimbabwe – a bus driver was transporting 20 mental patients from Harare to Bulawayo. After stopping for drinks at an illegal bar he found they had escaped. Resourceful as he was, he went to a nearby bus stop and offered everyone waiting there a free ride. He delivered them to the mental hospital and duped the staff that the patients were very excitable and prone to bizarre fantasies. It took three days to discover the deception.

5. America – a teenager received serious head wounds from an oncoming train. When asked how he received the injuries, he told the police that he was simply trying to see how close he could get his head to a moving train before he was hit.

6. Louisiana - a man walked into a Circle-K store and asked the assistant for change for a $20 bill that he placed on the counter. When the assistant opened the cash drawer, the man pulled a gun and asked for all the cash in the till. The assistant duly did his bidding and the man ran for it leaving the $20 bill behind. The till contained $15.

7. Arkansas – deciding that he wasn’t going to buy a drink a man attempted a smash and grab raid on a liqour store. Grabbing a brick he hurled it at the window. The brick bounced back hitting the would-be thief on the head, knocking him out cold. The liquor store window was made of Plexiglas. The whole event was caught on videotape.

8. New York – a female shopper was leaving a convenience store when a man grabbed her purse and ran. The assistant called the police immediately and, on the woman’s detailed description of the snatcher, the police soon apprehended him. They drove him back to the store whereupon he was taken out of the car and told to stand there for a positive ID. He interjected, “Yes, officer, that’s her. That’s the lady I stole the purse from.”

9. Michigan  - a local news crime column reported that a man walked into a Burger King in Ypsilanti at 5 A.M, brandishing a gun and demanding cash. The assistant told him that he couldn’t open the till without a food order. The man ordered onion rings which the assistant said were not available for breakfast. Frustrated the man walked away.

10. Seattle – police arrived at a crime scene to find a very sick man curled up next to a motor home. A police spokesman said that the man admitted to trying to steal petrol, but he got much more than he bargained for when plugged his siphon into the motor home’s sewage tank by mistake. The owner of the vehicle declined to press charges saying that it was the best laugh he’d ever had.

The interests of our customers are always at our heart and we always like to know how they are getting on. Last year we raised a farm loan for some land for our customers in South Wales. The land finance has clearly been used well and our customers have recently contacted us again about a farm loan for expansion.

Here is what they said:

‘Hi Mark
 
Hope all is well, we are having a fab time !

Everything gone extremely well after our first year, in fact we have been looking to expand.
 
After our first year, we have achieved everything we had hoped for and more, and made some fantastic connections from slaughter houses who have offered to buy most of our stock.

But we do better selling at the farm gate.
 
We have bought weaners in and fattened them up, also have 16 breeding sows at this particular moment. We have 11 Highland Cattle, bred them and had calves, and just hired a bull to bring them in to calf again. We slaughter and have a regular customer base who purchase our Pork, and have just gone in to specialising in Highland Beef.
 
50 Chickens selling eggs, and can’t produce enough !  
 
We have bought 2 Tractors ( 1 John Deere + 1 Marsey), an agricultural Trailor, various other farm machinery and had planning for a 165 sg mtr Barn.
 
Borehole just been drilled, up and working so have our own private fresh water supply.
 
So you can see we have put our all in !’

How wonderful is that! We cannot say enough about how proud it makes us to be part of a success story – it is not just about arranging farm finace or farm mortgages but much more about our customers being successful. When they are, we know we did our job well.