Welcome to 2024

It is always a good time to reflect on your business, strategy, personal goals, and ultimately, why you are doing what you are doing – we are advisors, and I’m sure you would expect us to say that!

But – it is more relevant now, given that many of you have had a tough year in 2023, and with it something of a reality check after the remarkable years prior.

Here I will focus more on your business and strategy – While your confidence may be a little battered this year, farm businesses are generally (and most likely including yours);

• In the best financial and productive shape they have been for a very long time – despite the results from 2023.
• The stage is set for businesses to perform well in 2024 with the early budgets showing significant improvement, as long as the season plays ball.
• This is with the knowledge that livestock prices aren’t sharing the gains, but grains are in good shape and costs are generally in hand (excepting maybe fertilizer, machinery prices and interest rates – with signs that there may be some improvement on the horizon).
• The planning for 2024 also comes with added complications stemming from the Covid stimulus driven plant purchases, and for many, high tax bills following 2022 and prior.

With this in mind, how are you feeling about some of the big decisions – the farm purchase, other items of machinery, impending succession?

Each of these investment decisions are being complicated by a much higher cost than we have seen at any time in the past. Add to this, we are now also having to factor in much higher interest rates, and with inflation at a relatively high level, we also need to consider that the returns on new investment need to be significantly higher than they were a few years ago to achieve the same post inflation return.

These factors alone mean that while returns from farming have been very good, the filter you apply in making investment decisions in 2024, are very different to the one you might have applied in 2022.

Add to this the impact of the geopolitical elements we see dominating the media at the moment, including Ukraine, Israel, China, Trump, Climate change policy, hangovers from Covid, etc. These, in turn are influencing elements closer to home, such as cost and availability of labour, inputs, and machinery, as well on the positive side impacting the value of your produce.

These would all suggest that volatility, and with it, business risk has increased at a time when land and input prices are high and therefore returns are much lower than they have been for the investment required.

These shifts also have an impact on the measures you use to assess your risk, including how we use some of the rules of thumb that have held us in good stead over the past. For example, an equity now of 75% taking into account increased land values (the rule would suggest this is acceptable), subject to the portion of land in your assets, may well have been 65% equity on previous land values (an at risk position), but noting your relative repayment ability will be similar to that which gave concern at a 65% equity.

Do you know what your required rate of return is on any new investment you make, and are you applying it?

Given the comment above, 5% may have been a very good return three years ago and would have been achievable to find in an investment. Now to achieve the same post inflation return, you may need to achieve an 8% return on the investment, but where investments can only achieve, say, 3%. In which case you may be pressured to take on higher risk to achieve more acceptable returns.

As Peter Falconer and others have said in the past, decisions made in, or just following the good times will impact how well you come through the next downturn.

Please remember to consider the investments that come across your radar more carefully than you may have in recent years – there may be some not-so-obvious catches. Please also balance the more conservative logic I have described here, with the knowledge that suitable opportunities to invest, don’t always appear when you want them and sometimes the best thing to do is to take the opportunity, even if the timing is poor – just assess it well with your consultant, and go into it properly understanding the risks.