Recently in Exchange rates Category

The value of the euro recently reached about 90p, prompting more advisors to urge farmers to use currency hedging to secure the value of their single farm payment.

Fixing the exchange rate now takes the risk out of currency fluctuation, making budgeting easier for the coming season, says Andrew Vickery of rural accountant Old Mill.

“Sterling values have reached an important trigger point, and everyone should be considering their options. This is not about speculating on the currency markets, it is a tool to manage volatility.

“Although taking such a step can seem complicated, it is actually a very simple process, and is now normally done via a straightforward foreign currency contract, so there is no need for an additional euro bank account.

“Action can still be taken if you have submitted your 2011 single payment claim, irrespective of whether you have elected to take your payment in sterling or euros,” says Mr Vickery.

The Sterling:Euro exchange rate is at its lowest for four and a half months, with one Euro worth almost 87p which is better than the rate set for 2010’s single farm payments.

Whether you have chosen to take sfp in Euro or not, the rate can be protected relatively easily and cheaply, says Tom Barclay at currency broker WorldFirst. He has seen more sfp claimants moving to protect their payments against adverse currency movements in recent weeks by fixing their Euro exchange rate in advance.

Last year’s single farm payment was paid at an exchange rate of 1Euro:86p, the second most favourable rate since the current scheme began.

On Tuesday, the Euro was worth around 84p but the future for the single currency is far from rosy, according to Tom Barclay, head of agriculture at CLA Foreign Exchange Services, part of currency broker World First.

He predicts the Euro value at lower than 81p by September, when the 2011 payment rate for sfp will be set. This alone would represent a cut of almost 6% in sfp values.

Political and economic uncertainty for many of the Eurozone countries and the dramatic rise in the cost of their governments’ borrowing means that sfp claimants should think about protecting their income sooner rather than later, says Mr Barclay. An increasing number are choosing to do this in stages this year rather than hedging the whole payment at one rate.

It’s that time of year when everyone starts having a stab at what they think will happen in the New Year. The latest crystal ball gazing is from economist Jeremy Cook at foreign exchange brokers, World First.

He reckons sterling, compared with the euro and US dollar, could be the best of a bad bunch of currencies next year.

For the euro, economic pressure and uncertainty is likely to continue across the eurozone in 2011, particularly structural issues in Portugal, Spain and Belgium. His “fairly conservative estimate” for the pound: euro rate in 2011 is £1 = €1.28 (£0.7812) - currently £1 buys € 1.17.

The US dollar is also predicted to remain weak as the Federal Reserve continues its second round of quantitative easing. An exchange rate of £1=$1.74 is predicted next year - currently £1 buys $ 1.56.

But with rising unemployment and high inflation, the UK economy isn’t exactly in the greatest shape itself and who really knows what will happen in such volatile times?

Volatility continues in the wheat market with prices falling at the end of last week and continuing down early this week. November 2010 London feed wheat futures closed at £159.75/t delivered on Tuesday, £4/t down on the previous day and a full £13/t down from the contract high established just a week earlier. But by late this afternoon, it had recovered by £4.25/t.

Profit taking by traders was seen as one of the main reasons for the fall. The possibility of an interest rate rise in China also played a part in commodity price falls.

Wheat prices are still heavily influenced by maize prices but the outcome of Australia and Argentina’s wheat harvests will play an increasingly important role over the next few months, say traders. Nevertheless the EU still looks short of wheat, especially if exports continue at  current levels.

UK grain consumers are expected to be running minimal stocks of grain by the end of the cereal year in anticipation of new crop coming in at lower prices.

The Rural Payments Agency has announced the new flat rate values that will be used for the 2010 English single farm payment.

Based on the exchange rate of €1 = £0.85995 set on 30 September, the payment for non- Severely Disadvantaged Areas is £207.37/ha; upland SDA, other than moorland, £167.50/ha; and upland SDA moorland, £29.36/ha. These values exclude modulation and any penalties that may be applied.

The flat rate makes up 75% of the 2010 payment, with the historical element accounting for the remaining 25%. Last year these proportions were 60% and 40% respectively.

The RPA said Entitlement Statements confirming the number and value of each farmer’s SPS 2010 would be made available on SPS Online by 8 December, while paper copies would be sent out in late December and the majority by mid-January 2011.

So the exchange rate that will be used to convert this year’s single payment from euros to sterling has been set.

The rate of €1 = £0.85995 wasn’t quite as good for UK farmers as last year’s bumper €1 = £0.91 and SFP cheques will be worth around 5% less as a result. But, timely weakening of the pound just before the rate was set means this year’s rate is still more favourable than those used in 2005 to 2008.

Indeed, the timing of sterling’s weakening was uncanny. After firming for much of the summer, the pound fell throughout last month on the back of dodgy economic forecasts, reaching its recent low-point almost exactly as the crucial 30 September deadline arrived.

It’s small consolation to farmers facing hefty increases in costs this winter, but every little helps. Now it’s just question of when the money arrives.

The European Commission has already said the UK won’t be one of the 10 member states that will get early delivery of single payments to help alleviate income pressures - ironically, partly due to the better income conditions afforded by the relative weakness of sterling.

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OK, we can’t do much about the weather, but a rainy day well spent might pay off [writes Suzie Horne].

For example, just one day after the single payment exchange rate was fixed, a further fall in the pound meant that claimants who choose to take their payment in euros could already secure next year’s cheque at a slightly better exchange rate than this year.

It’s interesting that in Scotland around 20% of claimants elect to be paid in euros, compared with just 2% in England. Any theories on why that might be? Almost all of those who take a euro payment in turn protect the value of that payment by fixing the rate at which it will be converted to sterling before the 30 September deadline.

Protecting margins elsewhere is becoming a higher priority. After another week of see-sawing wheat futures and the weather holding up drilling, many will have been watching prices and wondering if the dip we saw at the end of last week was the start of something bigger.

With a recovery of more than £5/t on Tuesday (5 October), it seems not. It will be interesting to see what happens to the £30/t-plus gap between new crop futures and prices for the final few months of the 2010 crop. Both November 2011 and 2012 London feed wheat futures were at more than £130/t delivered midweek, while May 2011 was £161/t.

Earlier this year I took part in a focus group with Andersons farm business consultants, as part of their research into a study they were doing for DEFRA.

That study - on the impacts of the recession on agriculture - has now been published and contains many pertinent observations.

On balance, it says, there has been little overall negative impact on agriculture from the changing conditions in the wider economy.

“In fact, the greatest effect so far, albeit indirect, has been a positive one as the recession has prompted a realignment of exchange rates that has greatly benefitted UK farming.”

The report goes on to highlight the reduction in borrowing charges, the lower cost of farm inputs and the benefits for businesses that have invested in holiday lets from the increased number of people who have holidayed in the UK...

The prolonged spell of dry weather has been in the news a lot recently, with the north-west of England poised to introduce the first hosepipe ban of the year by the end of this week.

And now, it would seem, the impact of the driest start to a summer for decades is making itself felt in the grain markets.

Wheat futures in London have firmed by £10/t in the space of a week and, according to merchants, some farmers could achieve £120/t ex-farm for their grain for Christmas, once the effects of the new bio-fuel plant in the north-east has been factored in.

Following a season in which wheat has traded for prolonged periods at less than £100/t, these sorts of values are bound to raise a smile or two among cereal growers...