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Farmland values set to rise even further in 2013

English farmlandís bull-run is not yet over, despite the impact of the horrific weather on farming profitability this year. The market proved resilient in 2012 and is predicted to gain further ground next year.

(Source: Knight Frank, 07 Jan 2013)

The average value of farmland in England rose by almost 3% this year, according to the results of the Knight Frank Farmland Index. This takes growth over the past five years to over 50%, and the 10-year increase to more than 200%. In the 60 years since Elizabeth II ascended to the throne, prices have risen almost 11,500%.

Unsurprisingly, given the summer washout that badly affected harvest, all of the growth in farmland values came in the first half of the year. Prices remained virtually flat in the second six months.

A fall in the supply of good farms for sale, coupled with an increase in demand from private investors, helped to keep prices stable and we expect farmland values to increase by around 5% in 2013. More land may come to the market as some more highly-geared producers with one bad harvest in the barn and another in the ground decide to call it a day. However, there is unlikely to be the kind of glut that could pull back prices.

An increase in availability, particularly of good blocks of arable land, could actually benefit the market with more stock for potential buyers to choose from and bid on. There will, however, continue to be strong regional variations. Areas like the Cotswolds that are attractive to buyers from outside the locality are likely to remain hotspots, but in areas where demand is mainly driven by neighbouring farmers, smaller, less productive parcels of land could prove harder to sell.

It has also recently been announced that the ongoing reforms of the Common Agricultural Policy (CAP) will not now be implemented until 2015, a year behind schedule. This delay should not affect the farmland market as it seems likely that the current system of farm support payments is likely to remain, albeit with a greater emphasis on the delivery of environmental benefits.

Although equities did outperform farmland for the first time since the credit crunch last year, the global economic recovery is still sporadic and we expect farmland to remain an attractive investment asset over the coming years.

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