Interest rates to stay low for 2011

Interest rates are likely to remain around the historic low of 0.5% for the next six to 12 months, according to HSBC head of agriculture, Allan Wilkinson.

This will be good news for farmers borrowing money to invest in their business, but it may be worth considering locking into rates before they start to rise, he said on the opening day of Cereals 2011. 

“It’s going to be a while before the government is brave enough to put base rates up, but we could well be at 1.2-2% by this time next year.”

He said the low interest rates would help keep the pound relatively weak against the euro for the foreseeable future, with the bank’s economic forecast predicting sterling rates likely to remain in the €1.12-1.16 range.

“The weak pound is good news for our exports, but if interest rates do rise, sterling will strengthen.”

Fixing interest or exchange rates were two ways farmers could manage their cost base – something that was increasingly important for all businesses, Mr Wilkinson added. He said there was a growing differential between the best and worst performing businesses.

“Some businesses can still grow cereals for £100/t, while others struggle to do it for £180/t. The top businesses are focussing on being technically brilliant and having a low cost base. You’ve got to ask who’s your competition and what are they doing to lower their cost base?”

Financial benchmarking against similar farms would help in the process, Richard Means of Strutt & Parker said. “It helps when the data being compared is against similar models, be it geographic, cropping, cultivation techniques or business structures.

“Collection of data with cropping yields and variable costs is relatively easy and allows for good analysis of input prices, rates, sourcing of product, helping highlight initial management decisions that could be improved quickly and easily.”