Has the Agricultural Sector Weathered the Storm?

Written by Heather Bamforth, Restructuring, Recovery and Insolvency Manager

Nobody can have failed to notice that 2018 has been a strange year for the UK in terms of the extreme weather we have seen. From the Beast from the East at the end of February, followed by a heatwave from May onwards, with very little rain falling since then. However in the agricultural sector, the impact is likely to have much more of an after-effect than perhaps any other sectors.

The “Beast from the East”

Winter was perhaps one of the worst for a number of years in 2018, due to the heavy snow the UK encountered in February and March 2018. Most farmers were affected in some way, shape or form, whether that was as a result of loss of income from uncollected milk in the case of dairy farmers, a delay for arable farmers in planting seeds due to the unseasonable amount of rain towards the end of March, or the loss of livestock for as a result of snowdrifts and freezing temperatures.

Livestock farmers in particular were already looking at an expensive spring due to the wet harvest in 2017 putting up the price of straw, with the cost of feed increasing as a consequence. As the snow began to melt, followed by the heavy rainfall in March, it was too wet under-hoof to send out the livestock to grass, so livestock farmers found themselves relying on feed longer. The National Farmers Union were conscious of the impact that this could have on farmers, resulting in the relaunch of their fodder bank to enable farmers to access feed, which was last open in early 2014. 

Super Hot Summer

With the bad winter and wet spring behind us, farmers would have been looking forward to a better summer. Unfortunately, the rise in temperature in May didn’t ease off as it usually does, resulting in it becoming too dry too quickly, with crops ripening faster and leading to an earlier harvest. This will have an adverse impact on the forage prices, as the shorter season will mean that there will be less availability for the winter months, driving up the overall cost to livestock farmers.

Whilst the rainfall has been practically non-existent, due to the wet weather earlier on in the year it is unlikely that most areas of the UK will be affected by drought. However, the lower than average rainfall has affected the availability of water, which will only add to the issues being faced by livestock farmers.

The winners and losers

Armstrong Watson has a team dedicated to Agriculture, which is headed up by Andrew Robinson in our Hexham office. Given the lack of rainfall which will impact on crops, on the face of it, arable farmers could be looking towards a difficult time. However, Andrew is not convinced, as he advises that when the yield goes down, the price of the grain will increase, so arable farmers are likely to be less affected than you may think. Livestock and dairy farmers are likely to have bigger issues, as his clients in those sectors have advised that they are already using this year’s forage to supplement the feed – the forage which is usually kept for the autumn and winter months. This doesn’t bode well for the next few months, which could see a number of farmers facing some financial challenges.

How healthy is your cashflow?

Like every other business, cash is always “king”. If you don’t have cash available to pay your suppliers, then it is likely that you will run into difficulties in the not too distant future. With the cost of forage likely to increase if it is in short supply, it is fundamental that you start to think about how you are going to manage the finances over the next few months, especially if it is likely that you will need to break into the winter’s feed sooner rather than later. If you are likely to need additional cash in the short term, can you access the cash by selling equipment that is now surplus to your requirements or is there scope for you to sell some of your older stock?

Do you have access to the right advice?                     

It’s extremely easy to type into a search engine “raise finance” and be inundated with a plethora of options; social media has meant that we have access to advice at our fingertips nowadays. But making sure you obtain the right advice for you is a completely different concept and making sure you have access to the right, unbiased advice is key. The Restructuring, Recovery and Insolvency team work closely with our Agriculture experts which means that if you or your client has an issue that needs resolving, our experience in assisting underperforming businesses, coupled with the hands on knowledge of our Agriculture team means that we can help to identify the problems that you are facing and work with you to find the right solution for you. Remember, if a deal looks too good to be true, it usually is…

What challenges are on the horizon?

As the weather hopefully starts to settle down and Autumn approaches, and as we look ahead to the future in the Agriculture sector, the cloud that is Brexit is still looming on the horizon. For most businesses, there will be uncertainty ahead. However, farming subsidies have been guaranteed at current EU levels until 2022 giving farmers the opportunity to start to build resilience into their businesses in the lead up to Brexit, knowing that there will be support available at the current levels for the next few years. So whether that is in the shape of making sure all of your equipment is up to date, planning for an exit of your farming business or reducing your current debt levels down so that your business is less reliant on debt finance, it is key that you should start to think about the future and make sure you are ready for the challenges. At Armstrong Watson, we are here to help, so please get in touch if you think we can assist you.

Get in touch with Heather if you'd like more information or advice about how to plan for the future of your agricultural business

Email Heather

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