It's not going to be as fabulous for farming as 2008 was, but 2009 will still be a good year. That's the conclusion of new research by Knight Frank.

"The start of 2009 looks a very different place for farming and the economy as a whole, compared with the sense of optimism that ushered in last year," says Knight Frak head of rural research Andrew Shirley. "Cereal prices are significantly lower, while the property market is facing its most turbulent time in memory. The base rate has been slashed to its lowest level ever and the pound has lost 25% of its value against a backdrop of company failures and job losses.

"A falling pound, however, is generally considered helpful to farming and lower cereal prices are good news for livestock farmers. Input costs have also started to fall."

2008 was a mixed year for the land market. Values raced ahead during the first half of the year as a mix of potential buyers vied for the limited amount of land available. Even while the residential and commercial markets were sliding, farmland remained buoyant. But by the end of the summer, the cracks were starting to show. Falling commodity prices and rising input costs combined with the credit crunch to stifle demand as investors, lifestyle buyers and farmers from the UK and abroad all withdrew from the market.

While values only fell slightly during the third quarter of the year, a more significant decline was recorded in the final three months of the year by the Knight Frank Farmland Index. The price of English farmland fell by 5% to average £4800/acre, but the strong growth earlier in the year meant prices still finished 2008 16% higher than they were at the end of 2007.

The big question now is how much of that growth will be eroded in 2009. We are predicting a further decline of 6%, but expect the market to level off during the year. While such a fall appears modest against the more dramatic peak-to-trough expectations of 25-30% for residential property, the farmland market still has inherent strengths that should prevent a bigger slide.

Availability did increase during 2008, but remains historically low. Farmers will always be keen to buy good blocks of land that enhance their existing holdings and the fall in values should also encourage some investors and “deal hunters” who did not want to commit at the peak of the market.

The market for top-quality rural housing looks set to stabilise this year as vendors become more realistic. According to the Knight Frank Prime Country House Index, average prices have now fallen by 16% from their peak at the beginning of 2008. Over half of this fall came in the final three months of the year with a drop of 9% – the sharpest decline in the history of the index. This reflected the realisation that even the top of the market cannot remain immune to a global recession for ever.

Although the market will remain tough this year, Shirley believes that it is close to reaching the bottom of the current cycle. There is still limited availability of the very best houses and interest rates are falling for those with access to reasonable deposits. Minimal returns on cash deposits and the ongoing volatility of the stock market could also encourage a move back into bricks and mortar in 2009.

Set-aside will return 'in disguise,' predicts Shirley's report. EU farm ministers finally thrashed out an agreement on the “health check” of the Common Agricultural Policy at the end of last year. As expected,one of the decisions was to abolish compulsory set-aside – the requirement for farmers to leave 10% of their land fallow each year – following concerns over world food security. That has not stopped the UK government pressing ahead, however, with its own environmental agenda that seems likely to require at least some land to be taken out of intensive production. Speaking at the recent Oxford Farming Conference, DEFRA secretary Hillary Benn said he recognised the need for farmers to produce as much food as possible, but this could not be done at the expense of the environment.