RICS/RAU Rural Land Market Survey

The latest survey results covering H2 2016 indicate a further softening in farmland demand, a trend which started to emerge in the latter half of 2015. The RICS/RAU report also suggests that anecdotal evidence from survey respondents highlight Brexit and future farm support uncertainties as well as declining agricultural profitability due to poor commodity prices as key headwinds.

The report also forecasts a further price declines over the next twelve months although it notes that respondents’ sentiments are less negative than the last survey, conducted at the time of the referendum.

The survey uses a combination of transaction based measure of farmland prices (which includes a residential component where its value is estimated to be less than 50% of the total) and an opinion-based measure (a hypothetical estimate by surveyors of bare land prices). The transaction-based measure suggests an average price of £10,233 per acre which is 7% lower than a year ago. The opinion-based measure, although 3% lower than last year, was broadly flat in comparison with H1.

RICS/RAU Rural Land Market Survey H2 2016 – Key Results

(£ per acre unless specified) H2-2015 H1-2016 H2-2016 (p) % change
Farmland: transaction based1
Weighted average price 11,049 10,952 10,233 -7%
Bare land: opinion based
Weighted price 8,306 7,975 8,062 -3%
Arable 9,304 8,911 8,982 -3%
Pasture 7,308 7,040 7,143 -2%
Rents: weighted average per acre
Arable – AHA 86 79 78 75 -5%
Arable – ATA 95 (FBT) 151 142 135 -11%
Pasture – AHA 86 56 60 53 -5%
Pasture – ATA 95 (FBT) 103 96 94 -9%
Yields (%) 1.8 1.6 1.5 -17%

(p) provisional subject to revision; includes residential component (less than 50% of value) Source: RICS/RAU

The report also estimates that average arable FBT rents are 11% lower than a year ago whilst pasture rents are down by 9% on a year-on-year basis. AHA rents have also declined although as one might expect this is not as pronounced given they are set at a lower level to reflect their longer term duration.

Average land prices since 2003 (£ per acre)

Source: RICS/RAU

Yields on investment land are also lower. During H2-2016, it is estimated that 63% of buyers were individual farmers whilst lifestyle buyers accounted for just under 25%.

In Ireland, the Irish Farmers’ Journal Land Price Report estimates that average land values decreased by 1.6% on 2015, a second consecutive fall. The average value of Irish farmland is estimated at €8,771 per acre (£7,455).

Looking ahead, with UK farm profitability and incomes picking up and Sterling likely to remain weak in the foreseeable future, it is possible that farmland prices could stabilise and possibly even rise during 2017/18, especially given the low interest rates and potential effect of inflation which has driven land prices upwards in the past. Longer term, Brexit remains the big unknown and the period of relatively robust land prices over the last 15 years could end if the exit terms and future farm support are unfavourable. Brexit will also become more of an issue for rents, particularly FBTs as 2019 draws closer. It is likely that ‘Brexit clauses’ or clauses to review rental values in the light of a significant change in support for example will become a more common feature of rental agreements.

Animal feed usage survey

Latest Defra statistics show that compound animal feed raw material usage (11.2 Mt) increased by 2.7% versus last year. Wheat (3.5 Mt) is the main raw material used and showed an increase of almost 9% on 2015 and a 23.5% increase since 2010.

Oilseed-based raw materials (2.6 Mt) were down 2.6% on the previous year. Oilseed rape cake and meal usage estimated at 0.6 Mt in 2016 was down by over 11%. This is unsurprising given the smaller oilseed crop last year.

Comparing 2016 against the previous year, compound animal feed production was up 12% for sheep and 11% for poultry, down 3% for pigs and 4% for cattle. In comparison with 2010, poultry usage has increased by almost 27% which highlights the extent to which poultry production has increased in the UK in recent years. In 2016, poultry consumed 46% of all grains made into animal feeds. Different animal species require different grain mixes in their diets, with poultry eating more wheat. Consequently, the usage figures showed a rise of 3.6% of wheat incorporation, but declines of barley, oats, maize and rape meal.

GB Compound Animal Feed Raw Material Usage 2010-16 (Mt)

Source: RICS/RAU

Raw material usage in integrated poultry units (IPUs) in 2016 (1.3 Mt) was down 8% on the previous year. Wheat accounts for the vast majority of IPU raw material feed. However, it should be highlighted that Defra adjusted its data from August 2015 to take account of IPUs that produce both feed for their own use and feed for retail sale. This has resulted in an increase in compound poultry feed and a decrease in IPU feed.

In terms of prices, the quarterly average price of cattle and calf compounds (Oct to Dec) was £211/t with the equivalent sheep price being £213/t. Pig compounds averaged £224/t whilst poultry was the most expensive (£237/t). Prices are generally up on 2015 equivalents but are £30-60 lower than the recent highs of 2012.