By Robert Harris

SIGNS of a recovery in farm incomes were revealed by banks at the Royal Smithfield Show this week, suggesting the touch of optimism in the air was more than just wishful thinking.

Tuesdays prediction by the ministry that this years incomes will fall by a third failed to dampen spirits. Latest figures from Barclays Bank show overall farm debt remained almost static in the 12 months to October, a sharp contrast to the 50% rise seen the previous year.

“Some sectors still have big problems,” said John Page, head of agriculture at Barclays Bank. “But overall figures show UK farming owes £3 for every pound of credit, almost exactly as last year. And credit balances are beginning to build.”

Signs of recovery were strongest on eastern counties arable farms. Although earlier IACS payments may have helped, higher potato prices, better quality grain and cheaper inputs all played a part, Mr Page maintained.

“But growers in the north-west, Wales and the south-west are up there with the pig men after two poisonous harvests,” he added. Specialist pig-farmers debt was two-and-a-quarter times higher compared with October 1997. Dairy farmers suffered a 28% rise. Mixed farms fared better.

Farm borrowings (ratio of credit to debt)
  1998 1997 1996
UK farming 3.0 3.0 2.1
Arable farming 2.7 3.4 1.8
Mixed farming 3.8 3.7 2.3
Beef and sheep 3.5 2.9 2.4
Dairy 6.7 5.2 4.1
Pigs 8.6 3.8 2.5
Source: Barclays Bank

Agriculture remained a better risk than Lloyds TSBs general lending portfolio, noted chief manager, Ian Stockley. Quarterly figures showed little change in the banks “risk quality” measurements over the past six months.

“The arable boys, particularly those with potatoes, have not had a bad time. Prospects next year look distinctly encouraging. November wheat futures suggest we can budget for £85/t for feed.”

Pigs and sheep were the biggest worry: “I am not sure we will see a significant price increase for a while.”

Retirement had played a part in slowing the rise in debt, said Brian Montgomery, head of agriculture at NatWest. “But that gives others an opportunity – we have seen some super results where younger people have turned businesses around.”

Although farm debt rose by about 10% from January to the end of harvest, deposits almost matched that, growing 9% in the same period. Arable farming led the way, Mr Montgomery agreed.

“But the milk price is beginning to pick up too, and beef is certainly on an upward trend.”

Mr Page predicted further improvement. “A continued gentle weakening of Sterling will help; we predict the Pound will be worth DM2.50-2.60 this time next year. And we see a further fall in the base rates, with a 0.5% cut in January or February helping it towards 5.5-6% next December.”

The fall would weaken sterling, especially against the US Dollar, said Mr Montgomery. “About half of our imports are Dollar-based, so they will cost more. And exports like grain are also priced in dollars, so they will become cheaper.”