Outlook for farming still quite positive

Single farm payments for 2009/10 are worth more and are going out quicker from the RPA. The single farm payment pays some £3.4bn into the UK farming economy. Following the 15% devaluation of sterling in 2009, this is about £500m more than in 2008. Who knows where the £ will go, although there are worrying signs that it is now strengthening.

Wheat and milk prices - improved outlook for 2010? Last year was especially tough for arable and dairy farmers. Wheat prices fell from £115/t before harvest to £85/t after harvest, but then climbed to trade at £100-£110/t. It has recently dropped below £100/t again, where it may stay until harvest, though new crop looks a little firmer.
Milk prices also slumped from 26p/litre to 22p/litre last summer, but are now climbing again following a solid firming of world dairy markets in the second half of 2009.

Beef and sheep - continued strong prices for 2010. Beef and sheep prices were at record levels in 2009 and, with tight supplies in the UK and globally, the outlook is for more of the same in 2010.

Tractor sales were down in 2009, but only from historically high levels. Tractor registrations came to just over 15,000 in 2009 - down 12% on 2008's record. But they were still the second highest they've been for a decade. The AEA predicts a continued slow decline, but says "there does appear to be a fundamental underlying confidence in agriculture".

Land prices recovered in 2009 to record levels, though driven by tight supply. The Knight Frank Farmland Index grew by 6.8% last year to end at £5123/acre - above the previous peak of £5060/acre. This was driven by a 30% drop in the volume of land sold, with farmers sitting tight. Over the decade, farmland prices rose 164%, compared with a 113% rise for prime London properties.

Longer term, global outlook remains positive for agriculture. All the big market forecasting bodies - such as the OECD, the EU Commission and Rabobank - take an upbeat view of agricultural markets in the medium term, as the emerging economies come out of recession and rising population boosts demand. Combined with growing demand for biofuel, the OECD estimates that crop prices will rise by 10-20% in real terms over the next ten years, while oilseeds will firm by 30%. But prices will be more volatile as commodities are increasingly linked to oil, and the weather is also less predictable.

WTO remains a threat, but no sign of an agreement any time soon. A WTO deal would lead to cuts in the level of border protection, leaving the EU vulnerable to cheap imports of things like Brazilian beef and South-East Asian poultry. But progress is still tortuously slow.

Overall, it's fair to say that, while agriculture has not been immune from the recession, it is performing better than many other sectors. Longer term, the outlook is also positive, though my own feeling is that 2010 will probably be tougher than 2009 for many, as interest rates rise and the pound strengthens.

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