English farmland prices fall in first quarter of 2016

English farmland values fell by 3% in the first quarter of 2016 with average prices dropping back below £8,000 an acre, according to the latest index.

Year on year farmland prices fell 2% but they are still up 32% over five years, up 176% over 10 years and up 4,886% over 50 years, the data from the Knight Frank Farmland Index shows.

However, the drop was the largest quarterly decline since the 5% slide that occurred during the final three months of 2008, following the collapse of Lehman Brothers bank.

‘Given the significant issues weighing on the market at the moment, a period of readjustment is perhaps unsurprising. Agricultural commodity prices remain low with little prospect for a strong rebound in the short term, while the potential implications of a UK exit from the European Union are adding further uncertainty,’ said Andrew Shirley, head of rural research at Knight Frank.

‘To put the drop into context it should also be noted that the average value of farmland is still only £18 an acre lower than it was at the end of 2014, and remains  almost 180% higher than it was 10 years ago. And despite falling in the two quarters after Lehmans’ collapse, farmland values had recovered all of their lost value and more by the end of 2009,’ he explained.

Shirley also pointed out that while last year the feeling was that the In campaign was going to win the EU referendum relatively comfortably, now the polls are predicting a much tighter result, with neither side of the argument yet to establish a convincing lead.

‘Predicting where values will head in 2016 and beyond is almost impossible until we know the results of the EU referendum in June. In the case of a Brexit much will depend on for how long DEFRA commits to providing a replacement system of support payments,’ he said.

‘But if sterling weakens for a prolonged period as some analysts predict, this would make UK grain and meat more competitive on global markets. UK land, which is already cheaper than in some EU countries, may also become more attractive to international investors,’ he added.

‘Whatever the outcome, we are still seeing strong demand from farmers who are either not reliant on EU subsidy payments or have taken the long term view that expansion is the way forward for their businesses,’ he concluded.