With many arable producers heading for good profits for the second year in a row. Strutt & Parker identified six key areas of potential investment at Cereals 2008 which it says are worth serious consideration.
The six areas are machinery, storage, drainage, staff, land and off-farm investments.
The company’s Matthew Ward said given decent weather, this year’s harvest represents a real window of investment opportunity.
“It’s always tempting to rush off and buy the latest bit of shiny kit – a new combine, a bigger tractor, a wider drill – and, for some, who may have got by with make do and mend over the past few years, that might very well be the best answer,” he said.
Leasing or hiring
There was a danger that because the farm was back in profit, many farmers would be tempted to rush back to the days of outright ownership, tying up huge sums of working capital in the process.
Leasing, hiring or joint ventures should also be considered, he said.
Mr Ward believed farmers needed to stand back and take an objective view off all the investment options identified.
Many grain storage systems need updating, and Mr Ward said, provided the right building was used, it could be used for something else if the grain price turned.
Or it might make sense to switch to off-farm storage at a nearby co-op and put the freed-up existing space to some other use.
Mr Ward said now could be the right time to review the efficiency of drainage systems.
“Many were put in 30-40 years ago when generous grants were freely available and are now nearing the end of their useful life and need either repairing or replacing.”
Investing in training was also important, to motivate staff and to address serious skill shortages in some areas.
Surplus funds could also be used to buy land, he acknowledged. Indeed, the return of farmers as active buyers to the land market was one of the key drivers behind soaring prices.
“Even at £6,000 an acre, it difficult to come up with a commercial rate of return that is higher than 2%. But farmers are buying because they are making money again and the chance to buy an adjoining farm or block of land may only come up once in a generation. ”
More farmers were also looking at off-farm investments. “Given the ups and downs agriculture has been through over the past couple of decades and despite the recent recovery in commodity prices, a very powerful argument can be made for a farmer to have at least some of his assets invested off the farm,.” Mr Ward said.