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Are the current agricultural price increases just a blip?
THERE is much talk about land and land prices, particularly agricultural land. Some experts forecast the price rising considerably over the coming months. So what is really going to happen to the agricultural land market?
Here James Baker of Strutt and Parker Estates and Farm Agency Department at Exeter writes for
South West Farmer.
We have all read about the rising agricultural commodity prices over the last six months, but are we all getting carried away with what maybe a shortlived blip and will the value of land fall in line with the residential market?
It has been well publicised that the profits from arable farming last year were good. However they are becoming increasingly under pressure as a result of the rising fuel and fertiliser costs. So how will this affect demand for agricultural land which is at the highest it has been for a decade?
Well, we continue to see a huge demand for large blocks of bare land and commercial farms throughout the country which surely isn't going to continue for much longer, as the profitability of farming will reduce as a result of these rising production costs.
This view is seen differently by similar people. We are currently acting for an investment bank who are actively looking to pump £millions into agricultural land, whilst on the other hand, my colleagues in the East are selling up large co-operative farming operations who are keen to make a profit from the rising land prices.
My long term view is that larger farms operating on a commercial basis will benefit from rising land prices and profitability.
Despite a predicted 13% increase in the world wheat harvest, this only equates to an extra 2% excess production over consumption. It would only take a small wobble somewhere in the world, perhaps due to unforeseen climate conditions, to reverse the balance.
After harvest 2008 it is predicted that the world stocks of "coarse grains" which include wheat, will be 1.1 billion tonnes, down 6% from 2007.
Six per cent of the world's rice harvest is from Burma. No-one as yet knows the effects of the cyclone on this crop and the undoubted ramifications to other commodity prices.
Although soya bean is predicted to have a record harvest in 2008, world stocks are predicted to fall 22% this year because of soaring demand.
Maize stocks in the USA are predicted to fall 7% in 2008 which will increase the demand for wheat. It is now cheaper to feed wheat to cattle in the USA.
The world population is set to increase by 50% by 2050.
Climate change is a reality and as the world becomes warmer there is likely to be more disease.
There is a continuing exploding demand for energy some of which must come from biofuels.
So maybe this current interest in agriculture and demand by wealthy individuals, farming companies and investment banks is well founded - surely they don't know any more than we do, do they?
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