Wednesday, December 9, 2015

"Savills calls time on UK farmland price boom"

As noted in the intro to July's "British land prices ease as farmer buyers step back":
Farmland is "worth" some multiple of the cash flow it can generate. What someone will pay for it is another story....
From Agrimoney:
Savills called time on the UK farmland boom which has seen values quadruple in some 15 years, citing the threat from weakened crop prices and a switch by investors to other assets. 
The property consultancy ditched a forecast made earlier this year of farmland prices in the UK, excluding Northern Ireland, increasing by 6% over the next five years.

Farmland values are now expected to decline 4.1% by 2020, represented the first sustained drop in the market since 1995-2000, when prices dropped by 10.0%.

Since then, they have quadrupled to some £8,000 an acre, in a rally fuelled by a clutch of supportive factors, including low interest rates, a dash amid the world financial crisis for so-called "safe haven" investments and, for long periods, elevated agricultural commodity prices too.

Weak crop prices 
However, Savills saw weak crop prices as a primary hurdle to further price increases.

"In the light of recent market evidence, the short- to medium-term expectations for commodity prices and therefore farm profitability, we have downgraded our forecasts for the next five years," the consultancy said.

Key global forecasting organisations, including the United Nations, the International Monetary Fund, and the US Department of Agriculture, have all taking a pessimistic outlook on commodity prices out to 2020.

Land markets in some other countries, such as the US, have already recorded modest declines, blamed on lower ag profitability....MORE
Average capital growth in UK farmland values 
1995-2000     -10.0%
2000-2005     +26.6%
2005-2010     +118.8%
2010-2015     +52.8%
2015-2020f    -4.1%
Source: Savills
We've pretty much chronicled the whole move:

Nov. 2015
U.S. Farmland Price Decline Now At Two Years and Counting
Sept. 2015
"US farmland prices 'falling at a pace of 6-7%'" (AGCO, DE)
Jan. 2015  
U.S. Farmland Has Been the Top Performing Asset Over the Last 20 Years: Goodbye to all that
Oct. 2013 
Real Estate: It's Not Just London, Big Money Lining Up to Buy British Farmland
June 4, 2012 
Factoid: Price of English Farmland Has Risen 10,745% During the Reign of Elizabeth II Regina 
June 2012  
"French Farmland Offers Better Value than UK Land"

We've been posting on British Farmland for years but, outside of the odd Chateau listing and the effects of climate on wine growing I think this is the first French farmland post.
Two things to be very, very wary of: The Common Agricultural Policy and the French tax code.
March 2012
Absolute Return Partners on Investing in Farmland

 Gerald Grosvenor might beg to differ with the answer to the question in the first sentence below.
Although his 300 acres got hit hard in the downturn it has come back strongly.
Half the Mayfair District, most of Belgravia, and Grosvenor Square where the U.S. Embassy is one of his many lessees make a nice hedge for the 4500 acre farm.
Throw  in the 17 acres in Silicon Valley and the 1200 acre Annacis Island off of Vancouver, B.C. and you've got a bit of diversification....
Oct. 14, 2009 
Green Acres is the Place to Be: "The UK farmland grab"