Banks loan extra £550m to farms but 'more needed'

Loans from banks to livestock farmers have increased by £550m since May 2009. However, there will be more to come throughout 2010, according to a banking expert.

Euryn Jones, national agricultural specialist at Barclays, said: "Looking further into 2010, increased input prices – particularly for fuel and fertiliser – are 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."

Most farm borrowing has taken place since the beginning of the year, with £396m having been taken out from January to May.

Dairy, beef and sheep enterprises showed increases in borrowing of around 5%, but arable borrowing stayed broadly flat over the 12-month period.

Jones added: "We have seen a reversal 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.

"Beef and sheep producers have enjoyed a period of good stock prices, but significant increases in prices have 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 £4.79bn at the end of the first quarter of the year – a reduction of £129m (2.63%) compared to the same period in 2009, when total deposits held by farming business was £4.91bn.

There has also been a fall in deposits of £129m (5.7%) since the beginning of the year, when total deposits were from agriculture was £5.08bn.

>> Banks must reduce lending rates to farms, says NFU

>> Bank rates: case of good news, bad news

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