30% land prices fall on cards as confidence hit

27 June 1997

30% land prices fall on cards as confidence hit

LAND prices are expected to fall by about £1000/acre, or 30%, as farmer confidence diminishes, according to agricultural consultants, Laurence Gould.

Research going back 25 years shows that, on average, the price of land has exceeded the value of wheat output (including area aid) by a factor of 5. This is known as the "confidence index".

Back in 1992, just prior to the MacSharry reforms, this stood at an all time low of 4.3. But by 1996 it had reached a record high of 7.1 as optimism in the state of the industry led to sky-high land prices.

But a survey of visitors to the recent Cereals 97 event at Alconbury, Cambs, revealed the level of confidence has dropped sharply. Farmers were questioned as to their price and area aid expectations, their future bank balances, their capital investment plans and their response to lower margins.

From this information, Laurence Gould concluded that the confidence index for the coming season should be back to 5.1.

"The key to the confidence index is it gives the true value of land, rather than the current price," says Laurence Gould consultant Andrew Knowles. "Our research shows that prices always realign to this true value, because the economics of land purchase cannot be ignored permanently."

Based on the expected wheat output for 1997/98 and a ratio of 5.1, the actual price of land should be closer to £2000/acre, he adds.

So why are farmers still bidding £3000 or more for grade 2/3 land when new crop cereal prices are less than £80/t?

"Previous years cash surpluses, roll-over funds and concerns about next weeks budget are causing an exaggerated lag, with the available cash in the system maintaining inflated prices," says Mr Knowles. "But unless a 25-year trend is about to be broken, we should see a significant weakening of land prices over the coming months."

&#8226 Land prices continue to defy the more depressed state of the industry, with 46 acres of IACS-registered arable land fetching £4685/acre at a recent auction in Leics. Auctioneers Howkins and Harrison saw their guide price of £160,000 eclipsed as a local farmer took the bidding to £217,000.n

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