Uncertain currency markets mean farmers should consider fixing at least part of their single farm payment, a leading currency broker has warned.
“Currency options can offer protection when exchange rates move against you and at the same time benefit you if exchange rates move in your favour,” Chris Wilson, of brokers World First, told the Suffolk Agricultural Association spring conference.
Forward contracts meant farmers could fix the exchange rate for up to three years in advance, Mr Wilson told delegates at Trinity Park, Ipswich, on Tuesday (26 February). The big risk was doing nothing, he warned.
Currency rates had fluctuated hugely during the past year. On a £100,000 single farm payment, farmers could save as much as £4,000 by fixing the currency rate, said Mr Wilson. Doing so took risk out of the business and made it easier to budget.
“You can fix all of it – or some of it, in various ways, including on a forward contract or a spot rate. You can lock in a rate of 86p now. It is the same as selling wheat forward – it is about reducing risk and giving you peace of mind.”
Although everyone wanted to know where the Eurozone was heading, nobody had a crystal ball. “We are surprised at how strong the euro has been, given the mess that the Eurozone is in with unemployment and ongoing political uncertainty in countries such as Italy.”
Although the UK this week lost its AAA credit rating, banking reforms that would have to take place during the coming months in other European countries were likely to hit the euro hard, said Mr Wilson. “It is our opinion that the euro will come down to 81-82p towards the end of 2013.”
The UK was not in a good position, either, but World First analysts believed it would perform better than the euro during the coming year. “This is largely why we are predicting that the euro will fall further against sterling.”