Farmers should consider taking advantage of the continued weakness of sterling by choosing to receive this year’s single payment in euros.
Claimants must state on their SP5 forms which currency they require payments to be made in, ahead of this year’s 17 May submission deadline,
Farmers who chose to “fix” the euro rate at which they received their 2008 single payment increased the value of their SFP cheques significantly over the Rural Payment Agency’s currency rate, effectively set by the European Central Bank in mid-September 2008.
For example, at the September 2008 RPA rate of €1:0.7903p, a €50,000 single payment was worth £39,515. At the euro’s peak against the pound in January 2009, that payment would have reached £47,849.But at sterling’s lowest point against the euro on 17 June 2009, that €50,000 payment would have been worth just £41,972. Although money-market trading can be complex, actions for producers are straightforward and can be made with limited risk. To take advantage producers must have either a euro bank account or opt to have the claim held by an exchange broker.
Euro accounts can be opened with most banks and normally attract a small charge for administration. For the risk-averse this may be an attractive option given the recent financial crisis. UK banks operating under the Government’s compensation scheme must guarantee up to £50,000 to investors. Foreign exchange brokers – at present – do not.
Trading euros depends entirely on producers’ attitude to risk. Exchange rates experience significant volatility, said UKForex’s Alex Edwards, but the expectation for 2010 was for sterling to hold a weaker position, especially if the General Election on 6 May resulted in a hung parliament.
“A client in consultation with his broker can set a rate at which his euros are traded. If you hold a euro bank account you can trade some or all of the euros at any time. If we hold the euros for you they must be traded all at once,” he said.
With lower operating costs, independent exchange brokers could often offer better exchange rate deals than High Street banks, he said.
“Depending on the client, we normally operate on a margin of 0.5% off the inter-bank exchange rate whereas a bank may operate on 2.5-3% typically.”
As with grain trading, producers can speculate on currency futures markets. Forward contracts are offered by banks and some brokers. However farmers may opt to simply talk to a broker and agree a base exchange rate at which – if the value of the euro fell further – the currency is traded.