Long, cold winter sees increase in borrowing

Bank of England data released this month showed lending to agriculture stood at 11.5bn at the end of the first quarter of the year – an increase of 555m compared to the same period in 2009.

The surge in borrowing has been primarily seen among dairy, beef and sheep farmers – with lending to arable producers remaining static. The costs incurred by the cold weather seen this winter are being largely attributed to be responsible for this.

There has also been an increase in lending of 396m since the beginning of the year.

Euryn Jones, the national agricultural specialist at Barclays, said: "We have seen a reversion to more traditional seasonal lending patterns this year with borrowing increasing during the first quarter.

"Many farming overdraft balances fell in December when most farmers received their Single Payments; but since then lending has increased as payments for farming inputs exceed receipts.

"Whilst grain and average potato prices have been poor during the year, reduced input prices have largely compensated for lower output. Our experience with arable farming customers is that most have managed to operate within existing overdraft limits and have not sought to increase their facilities."

Bank of England data also show that the levels of deposits being made by farmers stood at 4.79bn at the end of the first quarter of the year – a reduction of 129m compared to the same period in 2009.

Farmers of sheep and beef cattle have seen a period of good and improved stock prices.

However this in turn has brought significant increases in working capital requirements, as purchasers of store cattle and lambs need more capital to finance their enterprises.

Mr Jones said: "It has been a long, cold and expensive winter on many livestock farms with many feed and fodder bills being much higher than usual.

"Another factor that has contributed to higher borrowing by the sector is that improved confidence is encouraging farmers to reinvest in their businesses by replacing machinery and upgrading buildings – in some cases, for the first time in several years.

"The dairy sector will also have benefited from lower input prices," he said. "But on average this has not compensated for lower milk prices that many producers have experienced.

"Dairy heifer replacement costs are high and represent a significant cash outflow for farmers who are not breeding their own replacement and need to buy in.

"The significant range in prices currently paid for milk means that the financial situation of individual dairy businesses will vary more than ever, with those on lower prices struggling to cover their costs.

"The lending statistics also reflect the loss of a month's milk income for former Dairy Farmers of Britain members during the early summer of 2009."

CW 22/5/10