Lock into euro to protect your SFP

Farmers are being encouraged to lock into current euro exchange rates with respect to their 2009 single farm payments, and so take advantage of the weakness of sterling.

Christopher Birts of foreign exchange broker World First says that, with the euro now worth about 90p, farmers could guarantee a subsidy cheque worth about 14% more than their 2008 payment.

“The EU Commission converts the rate of single farm payment from euros to sterling based on the European Central Bank rate on 30 September,” he says. “But farmers don’t have to wait until then.”

If they elect to receive their SFPs in euros rather than sterling, World First can fix the exchange rate for them at any time. With sterling having weakened to historic lows against the euro in recent weeks, Mr Birts believes now could be as good a time as any to lock in the conversion rate.

“The process is very simple,” he says. “First the farmer registers with the broker and is assigned a dealer. He can then book a conversion rate at any time it looks attractive to him. He also needs to open a euro account with his bank and elect on the SP5 form to receive his SFP in euros.”

The farmer will need to pay a 10% deposit to reserve the exchange rate. There is no commission charge, though the broker does make a small margin on the exchange rate differential.

Of course, there is the risk that sterling could continue to weaken further by September, so if a farmer booked his exchange rate now, he could actually be worse off.

But last year the exchange rate on 30 September to convert SFPs into sterling was 79p/euro and the year before that it was 69p/euro, so booking now at 90p/euro would at least guarantee a significant gain over the last two years.

“It really depends on whether you think the pound is going to weaken or strengthen against the euro in the coming months,” says Mr Birts. “But the general view in the financial markets is that sterling may recover in 2009. There has been a bit of a knee-jerk reaction and an overselling of sterling. I feel we are bound to see some correction.”

How to pre-book an exchange rate

• Register with a foreign exchange broker
• Book a forward rate (at any time) and pay a 10% deposit.
• Elect to receive SFP in euros
• Open a euro account
• When the SFP cheque arrives, inform the assigned broker, who will convert it into sterling at the pre-booked rate
• For more information, contact agriculture@worldfirst.com or call freephone 0800 783 6022 or 020 7801 1061