Merryn's Blog

The trade of the decade - buy a hill farm

The price of lamb and the price of wool are both on the move. So is the smart place for your money now 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."

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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.

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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.

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