Looking at the Bank of England figures for total debt to UK agriculture and credit balances held to the end of June 2015 they show some typically seasonal trends. Credit balances are down monthon-month from end May 2015 to end June. The Bank of England reports a dip of £83 million down to £5.925 billion, as farmers use their reserves to buy store stock and the necessary inputs to go into growing crops which are at a peak in the midsummer as they escalate towards harvest. However, comparing the year-on year figures, credit balances are up by £96 million from June 2014 – an excellent trend considering the lower farm gate prices we are seeing across the UK in the previous 12 months.
UK agriculture as an industry is a net borrower by around £11 billion. The trend for those who need to borrow to fund their business activity and infrastructure – who are of course the majority – continues upwards with a solid increase in total debt to £16.89 billion at the half year to end-June 2015. This represents an increase of just under 9% for the industry year on year, slightly above the usual 8% figure. The total debt figure for June is up by £165 million from May, a small but significant 1%.
If the reduction in credit balances and the increase in borrowing are combined, it means that UK agriculture required £248 million to fund itself through the month of June alone. It just goes to show that while there are both small and large farms and every farm has different funding requirements, not only by farming sector but also for farm diversification, as an industry farming is a huge national ‘going concern’
“ Comparing the year-on year figures, credit balances are up by £96 million from June 2014 – an excellent trend considering the lower farm gate prices we are seeing across the UK in the previous 12 months.”
The increase of just under 9% reported by the Bank of England is broadly in line with recent year on year comparisons. Likewise, increased borrowing is the usual trend through summer, as farmers await harvest income and the large autumn sales of store cattle and lambs are yet to begin. Therefore the increased trend is likely to continue to the end of the year, when traditionally “ Comparing the year-on year figures, credit balances are up by £96 million from June 2014 – an excellent trend considering the lower farm gate prices we are seeing across the UK in the previous 12 months.” 23Annual Report 2014 there is a reduction in overall bank debt – that trend is expected to remain, albeit the reduction in debt may not be a significant as in recent years as farming income will be down overall in 2015.
One of the unmanageable forces farmers are having to face as we move into winter are the very flat global commodity prices for most farm-gate produce, tie that into the ‘unknown’ of the new Basic Payment Scheme and the degree of uncertainty is reflected in the current confidence levels of the industry. Those two factors alone combine to give less confidence to invest in infrastructure and expansion but increased borrowing demand for working capital among farms. It is important in times of tight markets to analyse your business to see if it is, or likely to become cash negative. Farmers should put budgets together, identify their working capital requirement and talk early to their bank, this way they can concentrate on running their business, knowing that baring further dramatic market movements or unexpected events they have the cash to operate in the coming months.