Bank lending to farming businesses increased to £11.5bn in the first quarter of 2010, according to the Bank of England.
The figure was 5% (£555m) above the same period last year, in line with the long-term trend for agriculture. If a similar pattern is followed in 2010, experts predict bank lending to the industry could break through the £12bn barrier by the end of September.
Indeed, actual lending facilities available to farmers increased last year and the borrowing figure could have been higher, but quicker payment of the single payment meant that the proportion of facilities taken up fell, NFU economist James Edwards said. He expected more facilities to be taken up this year.
“Farmers have arranged a significant amount of facilities during the low interest rate period of the last 12 months, anecdotally at fixed rates.” He expected the trend to continue.
Year-on-year changes in borrowing showed marked differences between sectors, with dairy, beef and sheep increasing borrowing by around 5%, but arable staying broadly flat, Euryn Jones, national agricultural specialist at Barclays said.
“While grain and average potato prices have been poor during the year, reduced input prices have largely compensated for lower output.” Most arable farming customers have managed to operate within existing overdraft limits, he said.
However, livestock showed a mixed picture. Dairy accounts had benefited from lower input prices, but this had not generally compensated for lower milk prices, Mr Jones said. High heifer prices were increasing replacement costs and lending figures also reflected the loss of income for former Dairy Farmers of Britain members in 2009.
“Beef and sheep producers have enjoyed a period of good stock prices, but working capital requirements increased markedly with purchasers of store cattle and lambs, in particular, needing more capital to finance their enterprises,” he 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.”
Improved livestock confidence was also encouraging reinvestment in machinery and buildings, adding to the higher borrowing by the livestock sector.
With underlying asset values growing at a greater rate than borrowing, agriculture remained a strong prospect for banks.
“Although total income from farming decreased in 2009, we expect the long-term trend to be positive,” said Gareth Oakley, agriculture director of Lloyds Banking Group. He expected a slight increase in overdraft use on cereal farms this year due to low grain prices, but said that long-term prospects looked more positive.
He advised farmers to consider fixing borrowing before interest rates rise in the next 12 months. Applications to fund capital expenditure on renewable energy projects and NVZ compliance were expected to be a busy area of lending, with some booked on a variable rate and an option to fix in future, he said.
Deposits from agriculture fell to £4.79bn in the Q1 of 2010, some £129m below last year.