Farm borrowing rose by almost 9% in the year to the end of October, reflecting increasing demand for working capital as well as investment.
The latest Bank of England figures show lending to agriculture reached £13.5bn in October 2012, compared with £12.4bn in 2011.
The percentage of credit taken up compared to that available also increased by 1% to 83% in 2012, suggesting farmers are using a bigger proportion of their facilities. In October, farmers had access to £16.2bn, £1bn more than at the same time in 2011.
HSBC head of agriculture Allan Wilkinson said the 9% rise came as no surprise, and estimated around half of on-farm borrowing was for investment, particularly in renewable energy.
Working capital requirements accounted for almost all of the other half as inputs such as fertiliser, seed, soya meal, agrochemicals have all gone up in price, he said.
Around 10% of increased borrowings were down to the effects of reduced sales, Mr Wilkinson estimated. The impact of the bad harvest and poor lamb receipts, for example, would become more obvious in 2013.
“Going into next year I’d expect borrowing to go up. Towards March, April, May we’re expecting it to rise even more than 9%.
“Situations will vary between farms, for example, depending on how much winter forage they might have.
“There’ll be less to sell – less weight of lamb, beef milk, etc. And we do not know the impact of Schmallenberg on cashflow yet.”
NFU economist Anand Dossa said the weather had been the biggest factor in this.
“Even the top 10% of farmers are struggling to make ends meet on a day-to-day cashflow basis,” he said.
In NFU meetings with banks, Mr Dossa said it was clear that banks realised the impact of the weather on finances and recognised the situation farmers were in. “They’re taking a more favourable approach,” he said.
Robert Logan from SAC Consulting said the picture in Scotland echoed what was happening in the rest of the UK.
“Borrowing has gone up for sure,” he said. However, he had not seen the same levels of investment.
“It seems to be more extension of working capital than investment, but the increase [in borrowing] on last year could be partly due to capital allowances at the start of the year, and increased machinery purchases for example.
“The headlines about price increases can be misleading because, yes, spot prices have gone up, but most farmers are tied into contracts.”
One of the main reasons the figure is so high is that farmers may not be paying off as much as they did last year, he said.
“There appears to be more people taking a holiday from their loans and paying just the interest.”
Mr Wilkinson said he had seen an increase in working capital finance requests in the past year.
“Many businesses need that help to continue to progress,” he said.
He warned farmers to think about the longer term as well as immediate cashflow needs, but the most important thing was getting the finance that was right for the farmer and the business.
Access to finance was still good for farmers, he said, providing they had a sound business plan. In addition, most farmers had received their single farm payment promptly, he said.