UK BPS Entitlement Trading Update – 6.2.18
As we move into February, with just over three months left before the 2018 BPS claim deadline and following the RPA online system now showing maps and allowing entitlement transfer applications, entitlement trading is starting to warm up as landowners/farmers start to add up their eligible areas, and calculate what surplus/shortfall in entitlements they have. As most farmers/agents are aware, transferring entitlements is now a much easier and quicker process, and this gives the impression that they can “leave it until the last minute” to buy the entitlements they will need. However those who need to buy this year, especially those requiring large lots, should be wary of leaving it late, as demand is expected to pick up as we approach the deadline. This is due to the market’s increased confidence that BPS payments should continue after the 2019 claim year, certainly for the Brexit “transition period”, and maybe even beyond up to 2024, as indicated in Michael Gove’s speech at the Oxford Farming Conference, and questions after, in early January this year. And the argument now coming forward that Green Payments alone will not be enough to sustain the industry; more will still be needed to make up for the inefficiencies in the supply chain and the reluctance to allow the true cost of food to be reflected in retail prices.
Non-SDA entitlements are currently trading at £150 plus VAT, following a slight dip down to £140 plus VAT towards the end of January when demand slowed slightly. This represents exceptional value for money, with the Non-SDA 2018 BPS payment expected to be similar to that in 2017 at £228 (based on the current exchange rate of €1=£0.89), giving a profit of nearly £80 per entitlement in the first year. Those looking for large lots (in excess of 50) may be wise to consider buying some now, and perhaps some a little closer to the 15th May, to spread the risk of the price rising/falling as we approach the deadline.
At present supply of Non-SDA entitlements remains fairly good, however we currently are receiving more buyer than seller enquiries. This again suggests prices may firm.
As ever, demand already outstrips supply for SDA entitlements, and although early sales were agreed last October at £175 plus VAT, purchasers will now need to bid between £200-220 if they wish to secure some of these entitlements. With an expected 2018 BPS payment of £226 based on the current exchange rate, this price still represents a profit in the first year.
The demand for Moorland entitlements is also now picking up, and as ever it is proving difficult to source with prices now being achieved at £55-65 plus VAT. We would encourage vendors with surplus Moorland entitlements to sell, to put these on our books sooner rather than later.
Leasing – Non-SDA
Due to the renewed optimism about the life of BPS entitlements, there are now a number of vendors who would prefer to lease out their entitlements. For those farmers who do not have the cash to buy entitlements outright, this option may be worth considering, and should give a good return. Although there has been little interest in leasing since 2015, this could now change if the sale price, as expected, rises to over £200.
Despite early deals being done in January, trading of Scottish entitlements usually gets into full swing at the beginning of February, and with the reduction of the siphon applied to all entitlements transferred without land from 50% to 30% it is predicted that demand for Scottish entitlements will increase for 2018, livening up what has been in previous years a rather subdued market. There remains, however, an oversupply of entitlements for all regions, and it will be interesting to see how this affects the market as we move further into the season and toward the trading deadline of the 2nd April. Deals for large lots of Region 1 entitlements have already been brokered by this firm at 0.9 times the payment value for 2018, although this multiplier is predicted to be higher for smaller lots and anywhere up to 1.2 times face value. Entitlements for Regions 2 and 3 are predicted to achieve between 1 and 1.2 times their face value.
Welsh BPS Entitlements have so far been trading at values of between 1 and 1.3 times face value, although it is unclear whether these encouraging prices will continue. As in previous years, agents and farmers alike are reporting an oversupply of entitlements; however with Mr Gove’s announcement at the beginning of the year that funding for UK agriculture will remain unchanged after Brexit, it is possible that demand will pick up further. As yet, the Welsh Government has remained quiet as to the future of BPS in Wales, and this feeling of uncertainty seems to be having an effect on enthusiasm in the market. Initial enquiries from potential purchasers continue however, showing that there is still some demand out there, and it is hoped that this will be converted into genuine interest as we move steadily toward the 2nd of May deadline for transfers.
The market for entitlements is expected to be steady again this year with initial deals being done at between 0.9 and 1.1 times face value, fuelled as ever by the high turnover of land due to the prevalence of seasonal ‘conacre’ agreements. As in years past, trade is expected to peak from March until the trading deadline of the 2nd May, with entitlements with a high historic value predicted to achieve 1.5 times their face value. Entitlements with a high historic element remain more popular than those with a lower historic value, although the effect of historic values has less of an effect on the payment rate each year as we move toward the flat rate. Uncertainty as to the future of farm support is felt even more strongly in Northern Ireland than the other UK regions with the lack of a functioning government, but it is generally expected that payments will continue until 2020.