As yet there have been no open market sales although we remain of the opinion that the market is likely to kick off at £200 per hectare as it did last year. We have vendors who are already prepared to sell at £200. The market this year, however, could well be more bullish than last year. Last year the market was discounted because of the threat of a Brexit vote and obviously, following the Referendum and the uncertainty it has caused, this will have a negative effect. However we believe the positive effects of the devalued pound and the UK government commitment to guarantee the current level of funding until 2020 are now more likely to outweigh the negative effect of Brexit. This month will see the setting of the exchange rate for the 2016 Basic Payment, which at the time of writing (2.9.2016) is looking likely to see a 15% increase on 2015’s payment up from £178 to £205 per hectare. Whilst technically this is not the rate that will be applying to the 2017 entitlements about to change hands, the market has always based its calculations on the previous year’s payment. Unexpectedly, never has there been such a stark illustration of the phenomenon that has continually appeared whereby if the general economy does badly, agriculture does well. Subsequently if you are pessimistic about the general outcome of Brexit, it is likely the pound will remain at its current low level if not get worse. However if you feel in the next 12 months the general economy will improve then perhaps these higher payment rates will be eroded for 2017. On the basis that the exchange rate remains as it is now for the rest of September, a 15% increase of the Basic Payment will certainly increase liquidity compared with last year’s market, which was marked by a lack of cash following the crash in farm commodity prices.
Whilst our 2015 summer price prediction for 2016 trade was quickly surpassed with prices roaring away to £250 before Christmas, it is less clear what the average price or range will be for 2017. Last year’s average was £190 (for VAT registered sales of over 10 ha) and certainly in this case, if something is worth 15% more, than it was, it may cost the same percentage more to buy. This would see an average price of £220. Of course there will not be the fear of a shortage of entitlements this season, which was what drove the market at the beginning of the 2016 trade, although without any figures from the RPA it is impossible to know for any claim year what total number of entitlements are allocated across the UK. We do not know how many new entitlements will have been allocated under the new entrants and young farmers schemes, and also whether these match all the entitlements confiscated in 2015 and 2016. Following the Chancellor’s announcement that Pillar 1 monies will be available in 2019, effectively we are still in the same position as if we had remained in the EU and the BPS scheme was to run until the 31st December 2019. A new scheme would have had to have been created by the EU, or the current BPS rolled over. Obviously, however, the difference is that the UK will now be determining for themselves, if we have left the EU by the 31st December 2019, their own subsidy/grant scheme without the Europeans. The fear here is that without the French, the UK government may not be as willing to support farming in exactly the same way they have been with direct Pillar 1 type payments. However in the short term we have basically three years left to claim on entitlements purchased for 2017, and maybe we will still by in the EU well in to a new EU scheme as well after 2019. Whilst the Chancellor has not spelt out that BPS will be rolled over in 2019, it is difficult to see the circumstances in which the UK would want to go to the expense of creating a new scheme rather than using/adapting the current scheme and RPA online computer system which has cost an estimated £154 million so far to create. The Chancellor, of course, as we are sure is the case with all ministers, will be unable to say anything certain beyond the two year exit negotiating period without compromising the Government’s negotiating position with the EU.
Obviously uncertainty is never helpful but ultimately if you have eligible land at your disposal and funds available it remains a “no brainer” to buy entitlements which, if purchased at £200 have a good chance of returning a profit in the first year and certainly within the second as usual. Interestingly if one looks for a precedent at what could be a higher payment at current exchange rates of £205 per hectare, if one looks back to 2014 the average sale price was £230 per hectare following the payment being set for 2013 at £213 per hectare. The 2014 payment was set at £193 with the 2015 payment at £178. 2015 is not a comparable year as this was the first year of the BPS scheme, the “use it or lose it” year with the average price going down to £98 per hectare as farmers with surpluses struggled to sell their entitlements to a small pool of purchasers. If one considers therefore the effect on prices in 2014 of the higher payment rates in 2013, and the higher payment at most likely £205/ha for 2016, we could be seeing an average price for 2017 at £220.
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