English farmland values fell by almost 2% in the final quarter of 2015 to end the year at £8,165/acre (€10,567), according to the Knight Frank Farmland Index.
The drop was the first quarterly fall since December 2012. However, the average value of bare agricultural land still rose 4% in the first half of the year and 3% overall during 2015.
Knight Frank’s Andrew Shirley says this compares with a rise of 1% for prime London residential property and falls for the FTSE 100 (-5%) and gold (-7%).
According to Knight Frank there are a number of reasons why values have come back:
- The continuing run of low commodity prices had to have an impact on buyer confidence at some point – feed wheat is worth just half of what it was fetching just a few years ago and many dairy and livestock businesses are struggling to remain profitable.
- But the fact that land values have held up so well indicates that commodity prices are far from the most important driver of the land market.
- Uncertainty about the outcome of the EU referendum, likely to be held this year, will also be holding back some potential buyers concerned about the potential impact of a Brexit.
- The delayed payment of agricultural subsidies to some farmers and a potential hike in interest rates will also have dampened spirits.
So where now for prices?
Currently, Shirley says they are not predicting that the Q4 fall augurs for a long run of prices drops, indeed, it says assuming the UK votes to remain in the EU, it is entirely possible that 2016 could see prices rise slightly.
“Many farming businesses, particularly those with profitable renewable energy schemes, remain cash generative and are looking to expand.
“There are also a significant number of farmers who have sold land for development or via compulsory purchase and are looking for agricultural property to reinvest into,” he says.