Key points:

• The average price climbed to £9,100 per acre in 4Q2012, up 5% in 2012; our model estimated 7%

•Prices broke the £9,000 barrier for the first time in the year

•Both bare and equipped land values are at historic high levels

• Bare land values rose by 6% in the quarter to £7,000 per acre, up 17% in 2012

•Equipped land values remained at £9,700 per acre, up 3% since the start of the year

• Just over 90,000 acres were marketed in 2012, a record low level

• For 2013, our model estimates that values will rise 7%. However, this may be bullish and the rise could be lower. We expect bare land prices to increase faster than equipped land

•We expect less than 100,000 acres for sale again as there are few forced sales and as landowners wait for details for the CAP reform

All figures in this review are from our comprehensive database of

all sales of publicly marketed farmland in England over 50

acres; they exclude sales where the residential value of the sale is greater than 50% of the total.

Therefore all figures are transaction-based, not

opinion - based, apart from the regional values which are

from our farm agents.

Values climb 5% in 2012 to end on record high levels whilst supply is at an historic low

Review of the English farmland market October – December 2012

Market Intelligence Report

smithsgore.co.uk

Lowest amount of land for sale ever

Only 11,300 acres were marketed between 1 October and 31 December 2012, 15% less than in the same period of 2011.

The 90,500 acres marketed during 2012 was the lowest on record. There has never been less than 100,000 acres marketed before.

NB The regional bare and equipped values quoted are based on the opinions of our farm agents; the data on number and acreage for sale from our comprehensive database of all sales of publicly marketed farmland in England over 50 acres; they exclude sales where the residential value of the sale is greater than 50% of the total. All data is for 4Q.

North West – Simon WallerLittle change in the figures reported last quarter. It will be interesting to see if more farms come to the market in 2013 due to lower profitability and bank borrowing requirements. As ever, successful businesses with a strong balance sheet will be in a good position to take advantage of land coming to the market. We have had a series of good sales and are finding that appropriately priced, traditional farms are generating lots of interest while farms with a significant residential element are more difficult to sell. In many cases, the strong land values are offsetting the reduction in value on the residential side. The amount of land coming to the market has reduced. We have recently sold a 278 acre equipped Grade 2 arable and stock farm near Garstang for over £7,000 per acre. Of four other recent sales, three sold at or above guide price including 276 acre Blackhall Wood Farm, Dalston, Cumbria; this is a good example of the comment above as although the land and farmhouse sold, four of the other five houses remain on the market.

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £6,000 £6,000 £6,000Bare pasture (£/ac) £5,500 £5,500 £5,500Equipped (£/ac) £6,900 £6,500 £6,000Number of farms for sale 8 12 8Total area for sale (ac) 800 1,500 800

South West – Simon Derby

Demand remains strong from farmers and investors, and also for land with sporting interest. Lack of supply is keeping prices stable and high; very little has been sold this quarter and there have been very few good commercial farms available. Some farmers in the dairy sector are struggling and are selling off small blocks of land to neighbours in order to release some capital. Borrowing from banks is becoming more difficult and is affecting some sales. As in other regions, there is less strong demand for the residential element of equipped farms; this has resulted in some farmhouses being sold with as little land as possible so that the separated land can capitalise on strong land values. In terms of 2013, we do not expect the market to change significantly.

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £7,500 £7,500 £5,300Bare pasture (£/ac) £5,800 £5,600 £5,400Equipped (£/ac) £10,000 £9,600 £6,300Number of farms for sale 14 13 19Total area for sale (ac) 2,400 2,800 2,100

Land for sale in England

(acres)

4Q20124Q2011

(% change in last 12 months)

Bare land 2,6002,800

(-9%)

Equipped farms

8,70010,400

(-16%)

All land 11,30013,200

(-15%)

West Midlands – Ed de Lisle

As expected, we did not see a flush of new properties for sale. However, we were very busy before Christmas and put several properties under offer and completed on three bare land sales. The outlook for 2013 is positive and we anticipate a good supply of properties being brought to the market ahead of the traditional Spring market. However, the availability of top quality land is likely to remain very low. Strong competitive bidding is still driven by the demand from local farmers. With land values remaining strong and agricultural property continuing to be seen as an attractive investment, we believe values in 2013 will remain roughly unchanged.

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £6,800 £7,000 £6,500Bare pasture (£/ac) £5,000 £5,100 £5,000Equipped (£/ac) £7,500 £9,100 £9,000Number of farms for sale 3 6 1Total area for sale (ac) 200 1,100 200

South Central – Giles Wordsworth

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £7,750 – – Bare pasture (£/ac) £6,000 – –Equipped (£/ac) £10,000 – –Number of farms for sale 8 8 5Total area for sale (ac) 1,600 1,800 800

Complete frustration in the market with increasing demand and supply reducing significantly. Purchasers are definitely more discerning due to the higher values and will compete keenly for good quality land but are quick to dismiss poorer land especially if overpriced. An auction of 105 acres of arable land in west Wiltshire and the sale of 100 acres equipped land in west Oxon confirmed these values.

Land for sale in England

(acres)

20122011

(% change in last 12 months)

Bare land 17,30024,400

(-29%)

Equipped farms

73,200104,600

(-30%)

All land 90,500128,900

(-30%)

Smiths Gore offices

Bare land

Equipped land

All land

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

07Q1 07Q3 08Q1 08Q3 09Q1 09Q3 10Q1 10Q3 11Q1 11Q3 12Q1 12Q3

Acres

Area of English farmland marketed Source: Smiths Gore Research

Area of English farmland marketed

0

Acr

es

07Q1 08Q1 09Q1 10Q1 11Q1 12Q1

7,000

6,000

5,000

4,000

3,000

2,000

1,000Bare

Equipped

All Land

Bare and equipped values are at historic high levels

The average value of English farmland reached £9,100 per acre in 4Q2012. It has risen by 5% since the start of 2012, compared with an increase of 14% during 2011. We had forecast a rise of 7% in 2012; equipped land values were weaker than we expected.

Bare land values have risen strongly, by 6% in the final quarter and by a total of 17% over 2012.

The performance of equipped properties was weaker in 2012, with values holding constant in the final quarter, and increasing by a total of 3% during the year. As we said in our previous quarterly update, the market may have reached a natural threshold in terms of equipped values but this will only be tested once more land becomes available in the Spring and Summer of 2013.

Farmers remain the dominant buyers and are competing strongly for bare land. As most bare land sales are for smaller areas than equipped farms, more farmers can raise the capital to bid for them, so there tends to be more competition. There is growing evidence that availability of capital is affecting the market.

However, the market fundamentals that are driving prices up have not changed – the amount of land to buy is still very small and demand from farmers, in most places, remains strong.

NB The regional bare and equipped values quoted are based on the opinions of our farm agents; the data on number and acreage for sale from our comprehensive database of all sales of publicly marketed farmland in England over 50 acres; they exclude sales where the residential value of the sale is greater than 50% of the total. All data is for 4Q.

Yorkshire and Humber – Sam Tydeman

This winter period has seen land sales all but stop. I believe that any decent farms put to the market in spring 2013 will perform very well. Demand for farms and bare land remains extremely good from all buyer groups. The arable sector is particularly strong although there has been a price differential for land of poorer quality or in less accessible locations. I don’t expect average farmland values to change much in 2013 but this will mask a distinctly two-tier market, where buyer interest and price drops away significantly with quality.

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £7,000 £7,000 £6,000Bare pasture (£/ac) £4,750 £4,750 £4,000Equipped (£/ac) £8,000 £8,000 £7,500Number of farms for sale 5 11 5Total area for sale (ac) 1,800 1,800 600

North East – Iain Welsh

There is even clearer evidence of a two tier market, which is influenced by quality and location. However, as in other regions, values for prime arable land are holding firm fuelled by a lack of supply. Realistic pricing still a key driver to ensure interest and sales, particularly with the more marginal land. We have agreed sales to a mixture of buyers including farmers, investors and those with an equestrian interest. I am not predicting any significant sales in the early part of the year although we have some good instructions in the pipeline for spring. We have recently sold 322 acres of grass, arable and woodland near Durham and a 214 acre equestrian centre.

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £6,000 £5,800 £5,800Bare pasture (£/ac) £4,250 £4,000 £4,000Equipped (£/ac) £ 7,500 £7,500 £7,500Number of farms for sale 1 0 2Total area for sale (ac) 300 0 800

East Midlands – Luke Humphries

A quiet end to the year but with the feeling that a good 2013 harvest will reignite the embers of the 2012 farmland market. The poor harvest in 2012 may have left buyers feeling slightly worse off than they might otherwise have been, but nothing fundamental has happened to change a market which is typified by strong prices and low supply.

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £7,500 £7,300 £7,000Bare pasture (£/ac) £5,100 £5,000 £5,900Equipped (£/ac) £9,500 £9,500 £9,000Number of farms for sale 12 8 11Total area for sale (ac) 1,900 1,900 2,000

East of England – Bennett Swayne

There has been very little fresh land on the market this quarter, but this is typical of the time of the year. Some strong prices are still being paid, especially for black soils and silt land, although I am less bullish about prices in 2013 as the poor harvest might have taken some steam out of farming demand for land. There are still some investors looking to buy land but they may remain fustrated as I do not anticipate more land for sale in 2013 than last year.

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £8,250 £7,000 £6,000Bare pasture (£/ac) £5,000 £4,250 £3,000Equipped (£/ac) £9,000 £7,700 £7,000Number of farms for sale 10 5 7Total area for sale (ac) 1,200 900 1,100

South East – David Slack

The land market in the South East has been very quiet through the Christmas period with very few transactions taking place and things have yet to get going in 2013. Prices remain firm and there is still strong demand for all types of land, at least partially due to low amounts for sale.

4Q2012 4Q2011 4Q2010Bare arable (£/ac) £7,500 £5,750 £5,200Bare pasture (£/ac) £6,000 £5,500 £5,000Equipped (£/ac) £9,500 £7,500 £7,000Number of farms for sale 6 7 12Total area for sale (ac) 1,100 1,300 1,400

Smiths Gore offices

Average price in England

(£/ac)

4Q2012

(% change since

3Q2012)

3Q2012

2012 Whole

(% changein year)

4Q2011

2011 Whole

(% change in year)

Bare land £7,000(+6%)

£6,600 17% £6,000 12%

Equipped farms

£9,700(+0%)

£9,600 3% £9,400 13%

All land £9,100(+0%)

£9,000 5% £8,700 14%

Bare land

Equipped land

All land

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

07Q1 07Q3 08Q1 08Q3 09Q1 09Q3 10Q1 10Q3 11Q1 11Q3 12Q1 12Q3

£/ac

English farmland values Source: Smiths Gore Research

English farmland values

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

£/a

c

07Q1 08Q1 09Q1 10Q1 11Q1 12Q10

Equipped

All Land

Bare

Forecasts for 2013

Average value of English farmland up +7%, according to our statistical model of the market. However, this may be bullish and the rise could be lower. We expect bare land prices to increase faster than equipped land.

Market fundamentals have not changed significantly but there is more evidence of stable equipped prices or the market ‘taking a breather’. As we have said for the past two quarters, there is a two–tier market with the demand for and price of best quality land being well supported. Less attractive land is attracting fewer bidders and is being negatively affected by lack of finance for some buyers. We expect this to continue into 2013. Farmer buyers will also be less attracted to units with significant residential value so we are more positive about the outlook for bare compared with equipped land.

Less than 100,000 acres for sale - again - as there are few forced sales and landowners wait to see the detail of the CAP reform. The main risk to this forecast is landowners selling at what they believe to be the top of the market.

It might be expected that high prices would tempt more landowners to sell; however, other factors may have a stronger influence on the market during 2013. Our previous analysis has shown that the amount of land for sale reduces before a reform of the Common Agricultural Policy; the historic low experienced in 2012 continues to support this observation. We know now that the launch of the next generation of the Common Agricultural Policy is delayed until at least January 2015, so the reform’s influence on the market is likely to be prolonged.

Also, more fundamental issues may affect the market over coming months, as the debate concerning the UK’s level of engagement in Europe continues. If the UK’s eligibility for CAP funding were to end, it is difficult to imagine the UK government offering support at the same level. Consequently a reduction in farm incomes could be expected, which is likely to have a small negative effect on land values. But this is highly unlikely.

ContactsOur regional farm agents would be pleased to give you more information about the land market in your region or county. Please do not hesitate to contact them:

National Head of Farm Agency Giles Wordsworth Oxford 01865 733302

Northern England – Head of Farm Agency Sam Tydeman York 01904 756303

North East Iain Welsh Darlington 01325 370500North West Simon Waller Clitheroe 01200 411052Yorkshire and Humber Sam Tydeman York 01904 756303West Midlands Ed de Lisle Lichfield 01543 266407East Midlands Luke Humphries Peterborough 01733 559322 Andrew Teanby Lincoln 01522 539555

Southern England – National Head of Farm Agency Giles Wordsworth Oxford 01865 733302

East of England Bennett Swayne Newmarket 01638 676748South East and South Central David Slack Maidstone 01732 879053 Giles Wordsworth Oxford 01865 733302 Harry St John Oxford 01865 733304South West Simon Derby Taunton 01823 445036 Toby Perry Exeter 01392 294891

Scotland – Head of Farm Agency John Coleman Edinburgh 0131 3440881

Southern Scotland John Coleman Edinburgh 0131 3440881 Kay Paton Dumfries 01387 274394Northern Scotland Jamie Watson Fochabers 01343 823005

If you have any questions about this review, please contact Dr Jason Beedell, Head of Research, on 01733 866562 or jason.beedell@smithsgore.co.uk

Wales Charles Orr-Ewing Sennybridge 01874 636868