Sterling’s climb to a three-and-a-half year high against the euro could put a further squeeze on farm profits, but its impact may be offset by tight commodity markets worldwide.

As Farmers Weekly went to press, the pound was worth €1.24350 (€1: £0.80430), well above the 52-week low of €1.10650 last summer.

Single farm payments are likely feel the impact most as these are set in euros and converted to sterling using the rate on 30 September. However, of more immediate concern is the impact on exports and market prices.

“There’s something of a perfect storm at the moment, as global grain prices are coming back and we’re seeing an amplification of that in the UK with the strengthening of sterling,” said HGCA’s Jack Watts.

Around 90% of UK wheat exports go to the EU, with France a major destination. Mr Watts said a 3p increase in the strength of sterling over the past two months from €1=£0.83865 to €1=£0.80645 had knocked £6.50/t off UK wheat prices (assuming a static futures price of €200/t) and £15/t off oilseed rape prices (based on a futures price of €460/t).

But with a long way still to go in the season, market fundamentals of supply and demand could still outweigh exchange rate changes, he noted.

Returns from sheep markets could also be hit as one-third of UK sheepmeat is exported, 60% of which is to France. However, EBLEX’s Peter Hardwick said the pound was still relatively weak by historical standards and with French lamb typically at a €1/kg premium to British, there was scope to accommodate a slight rise in prices and maintain export competitiveness.

He also reckoned globally tight beef and sheep supplies could outweigh exchange rate fluctuations. In addition, the New Zealand dollar remained strong, which could reduce its competitiveness, and sterling was relatively weak against the US dollar, which could help non-EU exports, he said.

“The main thing farmers can do is watch what’s happening and try to plan for it,” NFU chief economist Philip Bicknell added. “One would expect a stronger pound to put downward pressure on commodity markets, but sterling is still relatively weak and we’re certainly nowhere near the 67-68p we saw a few years ago.”

Brown & Co’s Simon Mountjoy said hedging exchange rates was a possible option to minimise risk, but SFP claims should be big enough to justify the associated fees.