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What we’re hearing from farming businesses

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June is a busy month in the farming industry calendar, with two major agricultural industry shows this week alone. Paragon will be exhibiting at Cereals 2022 and the Royal Cornwall Show, on hand to discuss all things agriculture with attendees.

Ahead of the shows, we talk to agricultural business development manager Russ Nicholls about what we’re seeing from clients in the sector.

What trends are you seeing in the agriculture sector currently?

As always, it’s an interesting time for agri clients, with plenty in the sector keeping them busy. Like all sectors, farming businesses are dealing with inflationary pressures, with their input costs rising across most areas.

The continued fallout from Brexit, plus the weak pound, is putting pressure on those companies that trade internationally, whilst the situation in Ukraine is affecting their ability to source commodities from that country. The farming industry is never boring!

On the more positive side, demand for British produce is extremely high, particularly domestically, plus farming businesses continue to diversify their income through initiatives such as tourism or green energy schemes.

What are we seeing with regards to agricultural machinery asset prices?

Machinery pricing is experiencing strong upwards pressure as a result of the stock shortage impacting suppliers. That is affecting both new and used assets across a range of farming machinery.

Normally, manufacturers would be offering incentives on new equipment and dealerships would hold units in store. That is no longer the case and lead times for new equipment is widening. The demand for new machinery remains strong, so pure economics tells you that the cost will rise if there is a shortage of supply.

That is feeding down into the used asset market. If the normal acquirers of new machinery are having to keep hold of their equipment for longer, that constricts the used market also and we are seeing prices inflated in that end of the market also.

How are clients responding?

Our clients are acting in a couple of ways. Many continue to acquire equipment at current prices because they need it to operate their business. They will be passing the increased cost onto their end customer where they can.

We are also seeing increased demand to refinance unencumbered assets to raise finance to invest in their companies or extending the terms of finance to cover the increased period the farmer expects to operate the equipment. If they replace equipment normally on a three-year cycle, they will now replace that equipment every five or six years.

At Paragon, we are happy to fund tier one equipment that will be 10 years old at the end of the term. If the asset is quality manufactured, then it will typically perform well in that lifetime.

What are you seeing with regards to the green agenda and farming?

This is a huge focus and many farming businesses are grasping the opportunities it presents. For example, we are seeing more farming businesses installing solar panel farms, which is creating additional income for that business. We are also seeing greater levels of interest in the likes of biomass energy or smaller wind turbines.

There is also a huge focus on introducing more energy efficient equipment and machinery and we will see the latest technologies at the likes of Cereals this year. That will only improve as more money is invested in green research and development and the technology improves further.

To learn more about how Paragon can support your farming business, visit our Agriculture  webpage.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551