INCREASINGLY volatile markets may mean farming businesses that are highly seasonal or have long profit cycles will need to think differently about managing their cash flow in the future.

Tim Parsons, of Durham and Carlisle based H&H Land and Property, says farmers are operating in very different conditions than 10 years ago.

He said: "This greater level of volatility in agricultural markets is going to be normal so farm businesses whose profits come in on a seasonal, annual or even longer-term basis are facing a greater risk of hitting markets at sub-optimal times.

"While better market 'highs' could well balance out profits in the longer term, some businesses may end up waiting two or three business cycles to see returns come through."

He said in the North East this could affect arable and livestock farmers.

"Many of these could end up funding increasing amounts of their working capital through 12-month annual overdrafts, which simply can’t provide the longer term certainty and financial 'buffer' needed," he said

"Instead, shorter term cash flow needs would be better covered via a flexible loan spanning several years rather than an annual overdraft, which could find markets largely unrecovered in a 12-month period."

Simon Eales, from the Agricultural Mortgage Corporation (AMC), said another measure could be to take out longer term or interest-only loans.

He said: "We find our clients can be inclined to pay off term loan borrowing as quickly as possible. But at current interest rates, taking a longer term loan with lower monthly charges could be a very practical step to take to reduce the cash flow cost. Equally, a number of lenders offer interest-only loans where you pay back the capital when funds allow.

"So borrowing £250,000 over 30 years rather than 20, or even borrowing on an interest-only basis would keep monthly repayments low – especially with the rates you can fix now. In difficult times, like now, this means you are putting your business cash flow – and yourself – under less pressure. In more profitable years, it means you can free up cash to invest elsewhere or pay off more of the loan capital."

He said the example of £250,000 borrowed at a notional 4.5 per cent interest rate on a 20-year annuity would mean a representative monthly repayment of £1,582. As a 30-year annuity it would represent a repayment of £1,267 per month; and on an interest-only basis, £938 per month.

"As ever, it’s important to talk through these options with an independent financial adviser before making any decisions," said Mr Eales.