TCS – 04.06.14 – Entitlements & Naked Acres – 2014 Market Summary

It has now been a number of weeks since the 2013/2014 entitlement trading deadline, and only a couple of weeks since the SP5 deadline. We have now ‘caught our breath’ and are able to reflect on the six UK markets for both entitlement trading and hosting and naked acre letting; the English areas being; non-SDA, SDA & Moorland, and the Welsh, Scottish and Northern Irish areas. 

The market ‘kicked off’ in August 2013 at £190 per hectare, quickly rising to £300 per hectare from the start of November 2013, following DEFRA’s confirmation that entitlements would roll forward into the Basic Payment Scheme. The market remained steady at this level, and even slightly above, until late January 2014, when oversupply led to a gradual drop in price, falling to £250/ha during the first week of February. There were some spikes in the market but overall the price dropped steadily, reaching £200 per hectare in March. This price remained stable for the majority of the month and it was not until the last week in March 2014, that trade dropped consistently to below £200 per hectare, and continued to fall until the deadline on the 2nd April 2014.

The Non–SDA market was the most volatile throughout the trading period, which could be considered to be a result of the RPA’s inability to provide clear enough guidance of what to expect with the new scheme, combined with a surplus of entitlements and some purchasers offering low to push down the stagnant January market. Many vendors saw this pre-change over year as the one to regularise their entitlements situation which, together with the fact that any entitlements not activated, and for which one does not have eligible land for, in 2015 will be lost, lead to the oversupply. The knock on effect was that the flooded the market gave purchasers room to negotiate on price, ultimately forcing prices down.  

Our results for the season’s trading were: Highest sale price – £340 per hectare (non-VAT Vendor), £300 per hectare (VAT Vendor); Lowest – £110 per hectare; Average – £220 per hectare (for VAT registered Vendors).

The market started much later than that for Non-SDA, most likely due to the uncertainty over the value once DEFRA suggested they would be uplifting the value to the same as Non-SDA, and the first transfers were not agreed until early January. The late start, combined with the announcement that these entitlements were to be rolled forward into the BPS, plus a market shortage, resulted in inflated prices, for the first time higher than Non-SDA.  Despite this the SDA market could be considered to be the most stable of the markets this year.

Our results for the season’s trading were: Highest sale price – £270 per hectare (from a non-VAT Vendor). Lowest; £240 per hectare (VAT registered Vendor). Average; £259 per hectare.

The market started trading in mid-November, with trade before the New Year between £45 and £50/ha, rising to £55/ha in January.

Throughout the season it was noted that equal demand and supply saw strong prices throughout the trading period, and we only saw slight fluctuations towards the 2nd April, with prices ranging between £50 and £65/ha.

Our results for the season’s trading were (all VAT registered Vendors): Highest sale price – £65 per hectare; Lowest – £30 per hectare. Average – £53.26 per hectare.

The entitlement market was initially thought to be held up by the late release of the Welsh Assembly Governments (WAG) decisions for the 2015 CAP reform, which were only published halfway through January. It was also confirmed that the 2013/2014 trading period would be the last opportunity for trade prior to the 2016 claim; however it was thought that this did not significantly impact on trading values.

The Welsh market price was much lower than expected following the previous year’s trading, however out of the three UK areas (Scottish, Northern Irish and Wales) still operating on the ‘classic’ system, the Welsh area proved to be the strongest. Unsurprisingly the uncertainty about the proposed new regulations caused volatility, however demand seemed ‘matched’ throughout the season.

Our average results for the season’s trading were: Lower value entitlements (up to €300) were trading with a 1.2 multiplier; mid-value (€301 to €1,000) with a 1.6 multiplier; and the higher value (€1,001 – €5,000) with a 1.8 multiplier.

The market, as in previous years, did not start until mid-January and saw added uncertainty over the transition from the existing SPS to the BPS. The multipliers achieved early in the season were the strongest, with some mid value entitlements trading with a 1.7 multiplier. As the season moved closer to the 2nd April deadline however the market ‘tailed off’, seeing multipliers drop to near face value.

The Scottish market in 2013 year was the most stable of the UK regions, however despite a good start to the 2014 season in January, supply soon exceeded demand, which naturally led to an oversupply and a reduction in prices achieved. 

Average results for the season’s trading were: Lower value entitlements (up to €300) were trading at a 0.95 multiplier; mid value (€301 to €1,000) at around a 1.6 multiplier; and the higher value (€1,001 – €5,000) at around a 1.8 multiplier.

The entitlement transfer window was granted a month’s extension to the 2nd May 2014, enabling the implications of the new 2015 entitlement establishment process to be considered following late decisions regarding the introduction of the BPS by DARD.  Despite this however the Northern Irish entitlement prices remained strong throughout the season and did not suffer the peaks and troughs seen in the English markets.

An interesting move from DARD was the allowance of a further month of trading. This was in consideration of the new rules and requirements for establishing entitlements in 2015, and the new ‘active farmer’ test. Despite this, the market has remained relatively similar to the previous year. The extension of the entitlement transfer window, along with the Single Application deadline remaining on the 15th May, is thought to have caused a significant reduction on the Naked Acre market this year, with far fewer agreements being completed this year.

Average results for the season’s trading were: Lower value entitlements (up to €300) traded around a 1.24 multiplier; mid value (€301 to €1,000) traded around a 1.32 multiplier; and the higher value (€1,001-€5,000) around a 1.72 multiplier.

The 2014 season saw a decline in the number of landlords and tenants looking to set up naked acre agreements, with many opting to host entitlements earlier in the season instead.  That said there are some instances where naked acres, despite the inherent risk, could be seen as advantageous over hosting.  One such example could be where a landlord has only recently become the head of a holding and therefore may seek to benefit from a mechanism to obtain entitlements from the national reserve in 2015.  By hosting another farmer’s entitlements one could prejudice one’s ability to utilise such a mechanism and although full details of the national reserve process has not yet been forthcoming, some new farmers in this position opted for naked acres in 2014 just in case.

The growth of hosting as a replacement or alternative to naked acres caused a shortage of naked acres in the market and the natural increase in prices resulted.  Following the 2nd April there was reasonable interest in naked acres, with prices achieving £50 per acre.  However as the season moved closer to the 15th May the shortage became apparent and demand was strong.  As a result the market increased to £55 per acre from the middle of April until the end of the season.

Our results for the season’s trading were: Highest rental – £55 per acre; lowest rental – £50 per acre; average – £53.17 per acre.

While there was a reasonable demand for SDA naked acres, availability was low, which meant that prices remained strong compared to last year, with 2014 rents up 40% on 2013 at £50 per acre.

Our results for the season’s trading were: £50 per acre.

There was a lot of interest in Welsh naked acres this year, as the uncertainty of how the allocation of entitlements in 2015 will really occur left entitlement owners wanting to ensure that they claimed on as many acres as possible this year.  This resulted in early interest and tenancies being agreed soon after the 2nd April entitlement transfer deadline.  There continued to be strong demand up to the 15th May but poor supply for much of trading period.

A number of farmers and agents were dissuaded from entering into naked acre agreements this year due to fears about the new tests being carried out by the WAG and the potential risk to the 2015 reallocation should complications occur.  However the high demand saw prices in some auctions reaching £75 per acre although average prices remained considerably below this level.

Our results for the season’s trading were: £40 per acre.

Scottish naked acres have been as constant as ever. As with last year’s trade, and the year before that, the 2014 market kicked off at £6 per acre and remained at this level throughout the trading period.

With vast numbers of entitlements being claimed through this method it has been as important as ever to accurately map the eligible area. In many instances, large eligible area ‘buffers’ are included within the naked acre letting and provide the purchaser ‘peace of mind’ in event of inspection.   

In comparison to the other markets, it would appear that the Scottish naked acre market was the most consistent with very little price fluctuation.  This was generally only found where tenants would request a discount for taking on the large blocks of land. 

Results for the season’s trading were: – £6 per acre. 

The naked are market this year has been particularly short. The entitlement trading window was extended until the 2nd May, which allowed both vendors and purchasers more time to consider their options and dispose or purchase entitlements accordingly. Traditionally the naked acre market ‘kicks off’ after the close of entitlement trading on the 2nd April, however as this was pushed back a month, the naked acre ‘window’ was reduced to only 13 days. A further consideration was the ‘active farmer test’. Although not finalised, this proposes rule changes have raised concerns over the future of some naked acre lettings.

As with most of the other UK markets the prices have remained relatively stable. Prices ranged between £45 and £55 per acre with some LFACA naked acres going for around £65 per acre, and due to the extension of the entitlement transfer window, the many deals were very ‘last minute. 

Results for the season’s trading were:  £50 per acre. 

The market for hosting grew dramatically following its introduction in 2013, as many previous naked acre landlords and tenants moved over to this system.  Prices follow the historic rates for naked acres and this year ranged between £45 and £55 per acre fairly consistently throughout the season.  There was good interest in two year hosting agreements this year, however with the impending BPS changeover period almost upon us, most opted for a single year and may well rearrange their existing hosting agreements in 2015, subject of course to any relevant Scheme Rules.

Results for the season’s Non-SDA Entitlement Hosting were: Highest – £55 per acre. Lowest – £45 per acre. Average – £48.45 per acre

Entitlement trade for the 2015 Scheme Year has already begun, with interest in Non-SDA emerging at a very early stage this season.  The ink on the 2014 RLE1s is barely dry and we are already dipping our wicks to prepare them now for 2015.  The first transfers have been agreed at £140 per unit plus VAT for good sized blocks of Non-SDA, with the market already having accounted for the potential influx of large quantities of smaller blocks will have on the market due to the five hectare rule from 2015.  We will be actively trading these smaller blocks, however it could be unlikely that these transfers will be viable closer to the transfer deadlines as competition becomes more ruthless.  Therefore those looking to sell under five hectares would be well advised to enter the market sooner rather than later.  Those with larger blocks to sell are always advised to contact selling agents as soon as possible, in order that they are kept abreast of the market throughout the season and can choose the most opportune moment to sell.

If you wish to discuss any of the above please contact Ashley Taylor for Non-SDA, Charles Gregory for SDA, Moorland & Welsh or James Clack for Scottish and Northern Irish on 01392 823935.