ASK MOST farmers how they would like to receive their income, and the answer would be from the market rather than support payments. 

The logical might say both is even better, but with Brexit it is inevitable support payments will fall. That would also be the case if we had remained in the CAP. The market and what it delivers will become more important, as will efficiency to cut production costs. 

That makes it good news that short term market forecasts from the European Commission are optimistic, not least for the dairy sector. Prices have improved on the back of improved global demand for most commodities, helped by the drop in production brought about by difficult times for farming in 2015 and 2016. 

This has been even better in Scotland, because of the plunge in the value of sterling after the Brexit referendum. A weak national currency is always good news for agriculture, since it boosts export returns and makes importing less attractive.

Devaluation is however a trump card you can only play once. Currency weakness reflects underlying concerns about the economy, and ultimately that takes the gloss off a better export performance. We are seeing that now with higher prices and a slowing economy as people feel less well off – with inflation only failing to rise this month because of a drop in fuel prices. 

Farmers cannot rely on currency to save the day again and the forecast now is that sterling has stabilised against the euro. This is not a bad situation, but farmers need to beware of allowing better prices to justify production cost inflation. Instead, they need to be a cushion to help the industry prepare for more difficult times, as we gear up for whatever post-Brexit model the government finally delivers.

One worry is evidence that higher food prices, partly as a result of a weaker pound, are being used to soften people up for an opening of the floodgates to imports. We know Michael Gove, the Defra minister, has said he will not allow in sub-standard food, but that is a long way from rejecting food from countries that do not have parallel standards to the UK. 

We are now seeing frequent stories about post-Brexit food shortages and inevitably consumers will demand that the government prevents that by importing more to make sure supermarket shelves remain full. This is a tactic of which the farming lobby needs to be wary. The government might be all over the place on Brexit, but many cabinet members, including Michael Gove, have their own ideas on what will make it appear a success.

As to markets, the European Commission is suggesting stability and gradual gains for this year and 2018. It says this will be the last of four years of increased beef production, helped by fewer dairy cows being culled. It is forecasting a buoyant export market for pigmeat, but with the caveat that European prices have risen so strongly that the product is now less competitive in some key markets. This rise in pig prices was on the back of a plunge in sow numbers when the industry was facing crisis prices in 2015 and early 2016.

It is however the dairy sector that has seen the biggest turnaround in fortunes. According to the Commission, average milk prices are now around 33 euro-cents a litre across the EU. It says a number of positive factors are in play. One is a big boost in the demand for butter, with a reduction in supplies coinciding with the health message easing. 

This has brought about the biggest ever price gap between butter and skim milk powder. In mid-June the average EU butter prices topped €5000 a tonne for the first time. Prospects are also looking good on global markets. Exports are booming, not least from the UK thanks to the weakness of sterling. Stocks available for export from New Zealand are well back after a second season of poor weather and poor prices. This and signs that production growth will be modest in the United States should help dairy farmers here reduce debts built up during the dairy crisis. 

But all commodity markets are volatile and just as low prices are the answer to surpluses, good prices trigger the opposite effect. On that basis farmers need to make use of a period of low sterling and better prices to prepare their businesses for the huge post-Brexit challenge that lies ahead.