Low interest rates strengthen case for forward buying to combat rising input costs
Farmers should consider forward buying this autumn as a means of combating rising input costs as low interest rates keep the cost of borrowing money historically low.
So said Dick Mason, Agricultural Policy Director at Lloyds TSB, following the announcement (9 September) that the Bank of England bank rate will remain at 0.5% for a 19th consecutive month.
Dairy farmers and other livestock producers will be bracing themselves for higher feed costs because of this summers grain price rises and poor forage yields, he said. Meanwhile, the prospect of higher fertiliser prices over the next year will affect both livestock and arable farmers.
Buying forward can offer the potential to secure more favourable prices and will also help to reduce risk. This will have an impact on cash flow, but farmers should take advantage of low interest rates and seek help from their bank in financing advance purchases as cost effectively as possible.
There may be a need to extend an overdraft or take out longer term borrowing. Whatever the approach, it will be important to deal with an experienced agricultural bank manager who understands the long term prospects of the industry and recognises the particular pressures of running a farming business.
With the current Bank of England bank rate at 0.5%, Lloyds TSBs Corporate Economics team currently predicts gradual rises in interest rates as we move into 2011, with the rate reaching 1.5% by the end of that year. Longer term predictions suggest the rate reaching 4.25% by the end of 2014.
Lloyds TSB Agriculture: Lloyds TSB Agriculture provide a personalised banking service to farmers and rural businesses delivered through a network of over 150 staff, made up of over 80 specialist agriculture managers and 70 support staff, based in 43 rural offices throughout the UK. In recent years Lloyds TSB Agriculture has seen strong growth in its acquisition of new customers – the rate of customers moving to Lloyds TSB Agriculture from other banks currently stands at around 800 farmers per year.