Agricultural incomes are likely to improve in 2008 to levels not seen for five years, according to a forecast by Lloyds TSB.

At a meeting in Exeter, Devon, last week, Lloyds’ head of agriculture Peter Sobey predicted a total income from farming of £3.3bn in 2008 – a 30% rise on 2007 levels.

This was mainly because the full benefit of higher cereals and milk prices would not be seen until this year, he said.

But he added that cereal values were likely to fall after harvest 2008 as global production increased, leading to a 3% weakening of overall agricultural income in 2009.

“Cost control may also suffer in 2008 and 2009 as income improvements lead to a spending increase, but should then improve as the industry continues to restructure.”

Long-term outlook

The long-term outlook for British agriculture was bright, but farmers needed to ensure their businesses survived to reach these better times in a strong position, said Mr Sobey.

Dairy producers were set to enjoy a 60% rise in incomes from 2007 to 2008, with higher milk prices more than offsetting cost increases. Prices were likely to remain static into 2009, when slight falls in feed costs would contribute to a further small rise in income, he said.

Arable incomes

Arable incomes were also forecast to rocket this year, by over 70%. But despite extra pressure from higher input costs and increasing global production putting pressure on values after harvest, income levels would only drop slightly next year.

The outlook for livestock producers was less vibrant, said Mr Sobey. “The last 12 months have been a nightmare for the livestock sector and future returns look unexciting. Only the best, low cost systems will make a profit.”

Earnings restricted

He predicted that livestock returns would improve by 12% in 2008, given rising beef prices and recovering lamb values. But the contracting herd and flock size, along with high feed costs, prevented a significant rise in overall incomes.

“Most producers will subsidise their livestock with the single farm payment or other enterprises. This needs to be a conscious decision, with all the other scenarios looked at.”

Longer term, the outlook for all sectors was encouraging, with world population growth, demands on land for energy and climate change contributing to a doubling in demand for meat and milk over the next 40 years, said Mr Sobey.