Lloyds TSB comments on the latest Bank of England figures
The UK agricultural industry’s total borrowing has climbed by a further £379 million in the past 12 months. The national figure now stands at an all-time high of £9.393 billion, according to the latest Bank of England figures, released today (3 November 2006).
Commenting on the new figures Tim Porter, Agriculture Director, Lloyds TSB Business Banking, said:
“Short term bank lending has inevitably increased as a consequence of cost increases in labour and fuel, with fuel prices having a knock on effect on fertiliser and spraying costs. When coupled with weak commodity prices, especially in the dairy sector, it is not surprising that farm debt has increased.
“With the prospects of the Single Payment from the 2006 harvest not arriving until some way into 2007 we expect to see agricultural borrowing showing a further increase – enhanced by farmers holding on to grain in anticipation of higher prices,” he said.
At the end of September 2006 farming debt stood at £9.393 billion, compared with £9.014 billion at the same time in 2005, an increase of just over 4%.
On a more positive note farm asset values, particularly buildings and land, are increasing at a faster rate than debt levels - so the balance sheet of UK agriculture continues to strengthen. At the end of September, UK farmers had deposits of £3.728 billion – up 9.9% compared with the same time last year.
Mr Porter continued:
“Recent trends in deposit figures have been distorted by a delay in the receipt of the Single Payment but we are now seeing a return to a more normal seasonal pattern. Having received the Single Payment in June many businesses are developing longer term strategies and introducing on-farm changes by way of diversification, consolidation and co-operation. More land purchase is going on and debt would be increasing faster if asset sales were not occurring.
“The prediction of an increase in interest rates in the not too distant future means we have found many farmers looking towards reducing financial risk to their business. Many are considering fixed interest rates for longer tem borrowing in order to reduce costs and help plan their borrowing commitments.
“We recommend that farmers speak to their advisors, including their local Bank Manager, to consider the interest rate risk in their business and discuss ways of managing the impact this has on their overhead costs” he said.
