The trade of the decade – buy a hill farm

I asked a smart hedge fund manager a few weeks ago what he would buy if he could just buy one thing and hold it for ten years.

I ask them all the same thing and they usually give similar sorts of answers (usually some combination of Asian currencies). This man was the first one to ever say “a hill farm.”

His reasoning was simple. The biggest costs for the average farmer are fertilisers and feeds. But hill farmers don’t use much of either of these. Mostly, their sheep just make do.

They don’t use that much equipment either: if you aren’t feeding and fertilising, you don’t need the same kind of £70,000 tractor as the grain farmers in the valleys. So while everyone else might be whining about the fast-rising price of a tractor tyre, you probably aren’t much bothered.

The problem, of course, has long been that while raising sheep on wind-driven hills might not cost much, it doesn’t make much in the way of profits either. Neither the lamb price nor the wool price participated much in the great commodity boom leading up to the Great Financial Crash.

On the plus side, things might now be improving a little. The lamb price has risen substantially over the last year – so much so that there have been stories of sheep rustling in the Borders.

The wool price is finally on the move too – in New Zealand at least. According to today’s FT, the benchmark price of a kilo of wool has been around NZ$3-9 for the last two decades. But the first sales of the season this year have seen the price hit near on $15 a kilo.

Will that continue? It might well. Global wool production has been on a downward trend (along with prices) for a few decades, and inventories have been sold as traders have capitalised on high prices.

Now, says David Carter, the New Zealand Agriculture Minister, “there is nothing left”. Farmers will build their wool-producing flocks back up to meet rising demand and prices, but that won’t happen overnight. So prices should stay high for some time.

Which is why the “fashion industry is preparing to raise the price of men’s suits by as much as 10% later this year”. And another reason why it would be dangerous to assume that today’s slightly lower-than-expected inflation number is the beginning of a trend.

  • Kerome

    A hill farm, seriously? The case doesn’t sound terribly compelling… Here’s a thought: rather than going investing and looking for returns, why not decide to give something back and look for an opportunity to help your community via a sensible investment, rather than searching for maximum return.

  • Pusser

    Why not buy a policeman or a politician? That should bring about a decent return as long as the Guardian keep off your back.

  • alex

    I have to agree with these comments….can you name the hedge fund manager so I can make sure I never, ever buy anything he has control of in the way of funds. Smart? I think he was either pulling your leg or had drunk too much £800 a bottle French wine.

    On a more serious note it does illustrate how out of touch with reality and ill informed most hedge fund managers actually are, they just find a chart that’s been going upwards for a while and throw leverage at it hoping that the momentum will continue, then invent some convincing flanel as to what the ‘strategy’ is.

  • nev

    Thats good news. LOL.

  • Tom F

    Small hill farmer I know is now getting £140 a sheep up from £40 at the low a few years back.

    Still says he hardly breaks even and probably makes less than minimum wage based on hours put in…

  • JAW

    I used to be a hill farmer in the foothills of Exmoor a decade or so ago and took some advice from John Nix (famous for his annual Farm Management Pocket Book), who was telling farmers, in the face of the agriculturally under-exploited East European States then entering the EU and GATT agreements in the pipeline, to get out. They would earn more putting their money into any interest bearing account… so I sold up because it was extremely difficult in the late 1980’s and early 90’s to make even a moderate profit. In retrospect I made a serious financial mistake.

    In 1994 I sold the farm for £1,150 per acre which today is valued at £5,750 per acre, which is a 500% increase over 17 years, or 29% increase per annum. Today, some land in Southern England is selling for over £10,000 per acre.

  • JAW

    Sheep consume 6 kg of expensive protein to grow 1 kg of wool. Hill sheep are hardy breeds producing coarse low priced wool only fit for carpets, and doesn’t faintly cover the cost of production and shearing. NZ wool is high value Merino. No comparison.

    Without the EU subsidy it is impossible to survive as a hill farmer. Generally you hope to run at break even and the subsidy is your only living wage. You need a tractor and other specialist equipment to mow and bale hay or silage, muck-spreaders and yes fertilizer spreaders or your field fertility will plummet. You need hedge cutters to keep the hedges from invading public roads, livestock trailers to get the lambs to market, sheep and cattle sheds to over-winter the livestock. Veterinary expenses are large. You are constantly repairing livestock fences and beautiful dry-stone walls require expensive upkeep. There are several livestock levies and other compulsory payments eroding profit. Arable farmers have few of these costs.

  • JAW

    The depressive stranglehold the big supermarkets have over farm produce prices will be a concern, but for the next decade and beyond agricultural commodity prices will continue to increase exponentially. Land values will probably rise as pension and insurance funds pile in again.

    The hedge fund manager is indeed smart. Yes, buy a hill farm not to actually work it yourself, but to rent out to a tenant farmer. There is no shortage of country simpletons believing they can make a living from it. Then wait a decade for the tax-free capital gains. Another 29% increase per annum is unlikely but possible.

    Agricultural land… they don’t make it any more. With a projected increase in a hungry world population it seems a safe investment. In 2 or 3 or 4 decades into the future the danger is that when mass starvation begins to occur governments will introduce price controls and food rationing. If so, any advantage and exploitation by food producers will be broken. Sell out before then.

  • alex

    JAW I agree with everything but your last post, buying land at current prices and expecting the same again is no different to buying houses at current prices and expecting them to triple again as they did between 1996 and 2007. It isn’t going to happen. The best you’ll get is stability, but I would expect a steady drift down and a large real terms loss for our avid Hedge Fund Land Lord, infact the very thing that makes me sure the market is well and truly over valued is that people like that are talking about land as an investment.

    Common sense should tell you that if you struggled when land was £1000 an acre that the same farm is totally uneconomic at £5000 an acre, and it doesn’t matter whether your farming it or a tenant is, because the yield with an affordable rent at current prices will be terrible.

  • Mike

    Farmers will build their wool-producing flocks back up to meet rising demand and prices, but that won’t happen overnight. So prices should stay high for some time.

    How long will it take. One lambing season and then demand will be met and prices will revert. If you buy a sheep farm can you fast track some lamb production to capture this high price or is your production cycle controlled by Allah. After all it’s is lam.

  • JAW


    I totally agree with you.

    On reflection, anyone presently owning a hill farm or contemplating buying one… should be very wary of letting it to a tenant farmer. There are laws governing the creation of agricultural tenancies, which can be for life. Creating a tenancy would probably lower the resale value of the farm, reducing the capital gain.

    Better would be to offer the land on an annual grass-let basis, which doesn’t actually create a tenancy. Annual grass lets can command surprisingly high prices. You may however have to employ a contractor to apply fertilizer to the fields in order to obtain a premium price. Consult a land agent on the detailed contract to be drawn up.