Time to review farm finance

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News article

Time to review farm finance

January 2016

farm finance

Within an already difficult agricultural sector, the past 6 months has seen little positive change.

Farmers have already started to receive their 2015 Basic Payment Scheme, the RPA now aim to have made 50% of payments by 31 December 2015 and the remainder by the end of January. This will come as relief to recipients, although for many it is only a short term solution to a bigger issue and there is a realistic possibility given the debacle with the new scheme that payments could be late.    

Farmer across all sectors are carrying forward stock and crops in the hope that prices will increase in the new year. However, the UK currently has an exportable surplus of 3.5 million mt which is 24% higher than last season and with global stocks also high, given the strength of sterling against other currencies the short term outlook is worrying.  

In addition, many farmers have seen their working capital requirements increase over the last 2 years. They have either dealt with this through increases to overdrafts or long term borrowing but this is starting to cause alarm for some banks who are beginning to question farmers’ liquidity and profitability.  

Against this challenging backdrop, now is a good opportunity to review farm finances.

Most farmer’s initial reaction is to increase short term borrowing, typically overdrafts, in the hope that prices will increase over the short to medium term; although clearly there is no guarantee of this.  Whilst this can be a solution, it is important to consider the financial risk of continuing to store crops or feed stock in a market when there is uncertainty around the timing and change to output prices and this needs to be compared to the terms and cost of additional finance being offered.   

In these difficult times cash flow planning and whole farm budgets become critical and banks are increasingly requiring farm budgets and cash flows in addition to the previous trading accounts when reviewing and negotiating facilities.  

Farmers traditionally have been very loyal to their bank and whilst having a good relationship is important, the days of having the same relationship manager through a farming career are gone.  Farmers should review their banking arrangements and have the confidence to switch to the bank which offers them not only better rates but potentially better service as well.  

Recent banking reform has made changing banks much easier. Competition between banks is increasing and there are certainly opportunities available, not just for day to day clearing banking but for longer term loans as well. We are seeing an increasing number of clients taking out new or moving existing loans to other clearing banks who offer improved terms and farmers should be encouraged to take time to find the best deal.  

For more information and advice on farm budgets and reviewing banking arrangements contact Tom Heathcote on 01858 411222 email tom.heathcote@fishergerman.co.uk

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