Farm lending likely to continue rising during 2010

Bank of England data released this week (4 May 2010) show that bank lending to agriculture stood at 11.5 billion at the end of the first quarter of the year – an increase of 555 million (5.05%) compared to the same period in 2009 when total lending to farming business was 11.0 billion. There has also been an increase in lending of 396 million (3.55%) since the beginning of the year, when total lending to agriculture was 11.1 billion.

Commenting on these figures, Euryn Jones, National Agricultural Specialist at Barclays said: “We have seen a reversion to more traditional seasonal lending patterns this year with borrowing increasing during the first quarter. Many farming overdraft balances fell in December when most farmers received their Single Payments; but since then lending has increased as payments for farming inputs exceed receipts.

“Looking at year-on-year changes in lending balances, Barclays has seen marked differences between sectors, with dairy, beef and sheep enterprises showing increases in borrowing of around 5%, but arable borrowing staying broadly flat over the twelve month period.

“Whilst grain and average potato prices have been poor during the year, reduced input prices have largely compensated for lower output. Our experience with arable farming customers is that most have managed to operate within existing overdraft limits and have not sought to increase their facilities.

“The dairy sector will also have benefited from lower input prices, but on average this has not compensated for lower milk prices that many producers have experienced. Dairy heifer replacement costs are high and represent a significant cash outflow for farmers who are not breeding their own replacement and need to buy in.  The significant range in prices currently paid for milk means that the financial situation of individual dairy businesses will vary more than ever, with those on lower prices struggling to cover their costs. The lending statistics also reflects the loss of a month’s milk income for former Dairy Farmers of Britain members during the early summer of 2009.

“Beef and sheep producers have enjoyed a period of good stock prices, but significant increases in prices has meant that working capital requirements increased markedly with purchasers of store cattle and lambs, in particular, needing more capital to finance their enterprises. It has been a long, cold and expensive winter on many livestock farms with many feed and fodder bills being much higher than usual. Another factor that has contributed to higher borrowing by the sector is that improved confidence is encouraging farmers to reinvest in their businesses by replacing machinery and upgrading buildings – in some cases, for the first time in several years.”

Bank of England data also show that deposits from agriculture stood at 4.79 billion at the end of the first quarter of the year – a reduction of 129 million (2.63%) compared to the same period in 2009 when total deposits held by farming business was 4.91 billion. There has also been a fall in deposits of 129 million (5.7%) since the beginning of the year, when total deposits were from agriculture was 5.08 billion. The position in Barclays is rather different to the national trend as we have seen marked increases in credit balances during the year particularly by beef, sheep and arable farming customers, as they seek a safe haven for their cash

Euryn Jones added: “Looking further into 2010 increased input prices – particularly for fuel and fertiliser – is likely to mean that several farmers will need to borrow more during this quarter. The current weakening of the Euro, if maintained, would also dampen farm commodity prices by making exports less competitive and imports cheaper. Banks are likely to continue to be prepared to increase their lending to agriculture. The industry’s track record in repaying its loans is good and the asset base remains robust.”

For further details contact:

Euryn Jones

Barclays National Agricultural Specialist

Tel:      01970 653301

Mob:    0777 55 46834

Email: euryn.jones@barclays.com

Alan White

Barclays Media Relations Manager

Tel:      020 7116 6232

Mob:    0777 55 42673

Email:  alan.white@barclays.com