Brexit and a depressed commodity market has caused farmers to borrow more money
The first half of 2016 saw strong levels of farm borrowing against a backdrop of depressed commodity markets and uncertainty arising from the EU referendum.
The report by Agricultural Mortgage Corporation (AMC) says borrowing between January and June 2016 was buoyant despite these concerns, keeping pace with the average for the past three years – including 2015, a record year with in excess of 7% growth in net lending overall.
Senior Sales and Agricultural Manager Simon Eales explains: "While the value of lending is holding up, we are seeing a trend of a smaller volume of applications for larger value amounts.
"This probably reflects the high proportion of new borrowing for land purchase, which comprised almost half [47%] of all applications over the first six months."
He says investment in infrastructure also remains high, creating flexibility and future-proofing with grain drying and grain stores, dirty water handling and renewable energy generation.
"Projects that increase control over when produce is marketed or create security of supply in energy or water are proving popular," he explains.
Refinancing
As well as land and infrastructure investment, Mr Eales says refinancing is on the rise, forming 22% of the amount borrowed from AMC over the first half of 2016.
"Progressive farmers are thinking ahead – for example anticipating their January 2017 tax bill based on a better year, or taking the opportunity to restructure finances while interest rates remain low."
While some are building resilience by spreading debt over a longer term, others are restructuring debt finance put in place over the past 10 or 15 years on the back of reasonable commodity prices.
"With returns diminishing and certainly more volatile, this is an opportunity to take back control.
"A 10 or 15-year loan spread instead over 30 years, maybe with a two to five-year capital holiday at the outset, will help many businesses through the current period of uncertainty and leave them in a stronger position when markets pick up," Mr Eales concludes.