non-SDA
The entitlement market has seen some dramatic changes in recent weeks. Non-SDA prices have fallen, seeing some market variation between £240 and £265 per unit plus VAT. This reduction has been due to a surplus of entitlements on the market and purchasers holding fast at reduced rates. Vendors are now accepting offers at these levels in order to move their entitlements before the fast approaching 2nd April deadline. There has been some debate as to whether prices will fall further, however following the usual January ‘lull’, claimants and their agents are now beginning to calculate requirements in preparation for the 2014 claim, which means that additional purchasers should be coming onto the market to take up some of the surplus. It is difficult to predict what prices will do in the future as the annual trend is that prices increase as the season progresses, however with the particularly high prices seen earlier this season, the recent drop is something of a dilemma in terms of price predictions, with prices as always based on supply and demand. Despite the variations in the current market it is clear that a 1.5-2 year return on the purchase price of entitlements with a seven year shelf life is a good investment. Looking to the future therefore, despite the recent fall in prices, trade remains strong, with the number of transfers up on last season for the same period by almost 30%. Purchasers should be aware that now is a good time to buy as prices have come down and time is getting on to secure entitlements for this year’s claim. To avoid ‘Dutch auctions’ close to the deadline, purchasers should be making reasonable offers now. February is the time when trade becomes more frantic, and with the deadline now only six weeks away, things are ‘hotting up’ as shortfalls and surpluses of entitlements are being calculated. There are some purchasers in the market offering well below the market rate, hoping to achieve transfers at rates close to last season’s prices, however they are struggling to find interested vendors at this stage.
Some purchasers have been querying the current price of entitlements, which remains higher than last season despite the recent fall. They comment that there should be vast quantities of small blocks of entitlements on the market for those who will not be able to claim under 5ha in 2015, and this oversupply should therefore push prices down. Although these vendors are present in the market, it only takes one larger purchaser to take on all these smaller blocks to remove this surplus. Where therefore has the current surplus come from one might ask? There are also a number of large vendors on the market, who will inevitably be those on the ‘negative list’ from 2015, which means they cannot claim in the new scheme as they have previously, due to the nature of their primary business. The ‘negative list’ includes airports, railway services and waterworks to name but a few who, unless they can prove a viable agricultural income (meeting certain criteria) will no longer be able to claim from 2015. These businesses could be the source of the surplus entitlements on the market, perhaps trying to safeguard against the uncertainties regarding entitlement transfers following the 2014 transfer deadline. This would seem to be an ‘ultra safe’ approach, as one will be able to transfer entitlements from mid-January 2015, therefore why not benefit from a claim in 2014, followed by the sale of entitlements in 2015, or maybe earlier? We are waiting for confirmation from DEFRA, hopefully within a week or so, as to whether we will be able to transfer entitlements in the latter half of 2014, as it seems the amendments to the Single Payment Scheme extending it from the original 2012 end date, did not provide for transfers during this period, presumably because there was at the time uncertainty about the fate of SPS entitlements.
SDA & moorland
Demand for SDA entitlements remains high, which is being reflected in the price. Currently transfers are being agreed between £255 and £270/ha, for the first time higher than Non-SDA. This is therefore the prime time for farmers looking to offload excess entitlements to come to the market, as purchasers are quick to ‘snap up’ blocks as they come available.
Moorland entitlements continue to be in relatively short supply and consequently trade tends to be quick when entitlements come to the market, currently around £55/ha. Recent market activity suggests that there are some large purchasers coming onto the market, and as such vendors would be well advised to place their entitlements on the market soon to ensure they are ‘in the running’ when offers are made at the current high prices. With the Moorland payment for 2014 being just over £30 per hectare purchasers can still expect to see a return on their purchased entitlements in two years, leaving the remainder of the new BPS scheme as profit.
welsh
For farmers in Wales, there are now some very important decisions to be made. Looking beyond this year’s claim and into 2015 and the new scheme, it is vital that farmers are advised properly on their options and opportunities for claiming in the future. Effectively entitlements will be allocated to eligible claimants, based on their total eligible area, presumably following a claim to be made at some point in 2015. To be eligible a claimant must be an active farmer who received a SPS payment in 2013. Those farmers who did not successfully activate entitlements in 2013, but who can demonstrate (through receipts or accounts) that they were farming in 2013, will also be considered eligible.
milk quota market comment
With just over six weeks remaining before the deadline for submission of MQ1 forms, demand for milk quota is currently high although the offers we are receiving from prospective purchasers remain around 0.3ppl. There is no fear of hitting national quota this milk year, but some of the newer entrants into dairying who have never needed quota before are now seeking the comfort of some quota for the final year of milk quotas, as insurance against the possibility that another great summer could see production come close to national quota. There are also a high number of new entrants into dairying, and many dairy farms are expanding in anticipation of the end of quotas.
Farmers who went out of milk between 1.4.2012 and 31.3.2013, who have not yet disposed of their milk quota, would be advised to contact us as soon as possible to ensure they sell their quota before it is confiscated after 31st March 2014. Alternatively if you have surplus quota, you may wish to consider selling the surplus before the end of this milk year. If production is down in April, which, if the bad weather continues into May as some experts are predicting, is a possibility, then the threat of hitting national quota will quickly subside and there would be little demand for quota in the final year. However on the flip side there is also the chance that the weather will improve by April, and if the all the factors we saw last year remain the same, this could lead to another year of excellent production. If this were the case, then quota may become a valuable commodity in the last year. Oh how we all wish we had a crystal ball!
Townsend Chartered Surveyors will be trading right up until the 31st March deadline, as the main milk quota office is based in Exeter and we are able to take MQ1 forms direct to them on the last day.
To discuss your milk quota situation, please contact Julia Clark.
naked acres & hosting
For those wishing to continue with existing naked acre or hosting agreements, trade is now picking up and prices are beginning to crystallise at similar levels to last season, between £50 and £55 per acre for Non-SDA naked acres and hosting. The question then arises as to which option to choose, and it seems to have become clear that hosting will be the more secure option as the RPA do take a fairly ‘dim’ view of naked acres. This is not to say that naked acres cannot happen this season, only that if the RPA do come across naked acre lettings they will likely investigate thoroughly, and this process can cause long delays. There are however many farmers who remain averse to making a claim themselves, which is why they have continued with naked acres for so long. However this may be the year to ‘take the leap’ to ensure a less risky mechanism for 2014.
Entitlement owners who arrange for someone to host their entitlements are of course not free of any risk, however they may be prudent to consider a two year hosting agreement during the transition period into the Basic Payment Scheme. This would avoid the risk of being unable to find a host in 2015 which, if they do not have access to their own land to claim on, will mean that their entitlements cannot be activated and will therefore be automatically lost. A two year hosting arrangement could avoid this risk as parties would be ‘locked in’ for two years. Of course the full details of the new scheme are yet unknown and break clauses should be in place to guard against any preventative regulations that might come into force in 2015. From the host’s perspective this could also be an attractive option and we have previously dealt with agreements whereby either the hosting fee is paid in full up front, perhaps at a lower rate, or in separate payments for each year. Landowners thinking of hosting another party’s entitlements should however take care, especially if their land is tenanted, because they would need to ensure it is available for the second year and there is no chance that a break clause in a tenancy agreement could be effected, which would prevent them making a claim in the second year. It will certainly be interesting to see if the current surplus of English Non-SDA will create an increased demand for hosting as the transfer deadline looms and vendors who have not sold wish to hold on to their entitlements and sell them next year.
As always the devil is in the detail and professional advice should always be sought when setting up these types of complex arrangement. Please contact Ashley Taylor to discuss naked acres or hosting.
Our entitlements team are on hand to answer your CAP queries and to arrange entitlement transfers. Please contact Ashley Taylor for Non-SDA, Charles Gregory for SDA, Moorland & Welsh, and James Clack for Scottish & Northern Irish.