Wednesday 28 September 2016

Rented land hits €550/ac as experts warn of 'bubble'

Competition for land sees letting rates soar but Teagasc says prices are already too high

Jim O'Brien and Louise Hogan

Published 27/01/2016 | 02:30

Concerns have been raised at the cost of renting farmland.
Concerns have been raised at the cost of renting farmland.

Concerns are being raised over the economic viability of rented land, with prices as high as €550/ac being paid for potato crops and €300/ac on grass for expanding dairy farms.

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Auctioneers are reporting a distinct growth in the longer term leasing market with farmers willing to pay higher prices to secure five-year leases.

However, Teagasc advisor Ivan Whitten urged farmers to carefully weigh up the costs of land rental against increased volatility in world markets.

"Farmers - whether in milk, beef, dairy or tillage - are paying too high prices for land rental with the volatility there is in the commodities market," said Mr Whitten.

"The land rent that farmers need to be paying going forward needs to be paid on the productive capability of the field and their actual growing costs or production costs."

The expansion in the dairy industry post quota, along with more farmers competing for land for the young farmers scheme and the tax incentives for longer leases are just some of the factors behind the demand.

"Farmers are out competing against each other and driving up the price of land," said Mr Whitten.

He urged those entering into five-year or longer leases to ensure they have review clauses built in.

"If they are tied in it will be the same as the rental market in Dublin. The land lease market is very similar to the property bubbles in the Celtic Tiger years in my opinion," he said.

In the south east, Wexford auctioneer David Quinn has reported prices between €185 and €260 for grassland, with dairy farmers paying higher prices for land near their milking platform, both with and without entitlements. "There will be less land this coming year as more people are opting for the five-year leases," said Mr Quinn.

Long-term leases

In Kilkenny, Castlecomer auctioneer Joseph Coogan reported a parcel of ground made €220/ac on a five-year lease in a letting auction. "This marks a €44/ac increase on the price paid for the same land last year on a one-year arrangement," Mr Coogan said.

"I have seen up to €300/ac paid for adjacent ground for milking. A lot of new land coming on the market is only available for five-year lease."

Average prices in the Kilkenny and Laois area are between €220 and €280/ac.

Stephen Barry of Raymond Potterton, which handles lettings from Meath to Cavan, says new tillage ground is making an extra 10pc on last year, with €450 to €550/ac for a five-year lease on "spud ground".

"Grass is making between €165 and €240 while regular tillage land is making around €210/ac," he said. "There is a strong demand for new ground, especially from potato and grain farmers."

In Cork, Blarney auctioneer Dan Fleming recently let a 110ac tillage farm for €250/ac. He reported a distinct shortage of tillage land on the letting market, with prices of €250-300/ac for longer leases.

Roscommon's John Earley said flooding has delayed the letting season, with prices expected to hold at around €150/ac to €200/ac.

Teagasc figures indicate that it takes 666l of milk at 30c/l, 50kg of beef at €4/kg, 1,333kg of wheat at €150/t or 1,666kg of potatoes at €120/t to cover rent at €200/ac.

Mr Whitten said farmers must question if the field would produce an "additional 15pc in output to compensate the farmer for a predicted 10pc drop in the price of commodities in 2016."

Current grain market pressures indicated prices would fall €5 to €10/t next year. He added that with green wheat at €140/t, it would take a 4t crop to break even.

"Someone is not going to get paid or the farmer is prepared to work for nothing. It is putting families under serious pressure financially and their health as well."

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