Forward trading the Single Farm Payment

    Should farmers opt for payment of their Single Farm Payment in euros or Sterling? It’s a question that is becoming more pressing as the current financial upheavals in the Eurozone make a challenging task of forecasting the value of the euro.

    Farmers can receive the Single Farm Payment in Sterling, calculated at the prevailing exchange rate against the euro on 30 September of that year, or in euros, in which case they manage the conversion to Sterling themselves.

    Managing payment in this way can pay dividends: a look at the exchange rates over the last seven years shows that the difference between a typical €100,000 payment at the strongest and weakest rates was as much as £22,900 – that’s £68,200 in 2005 against £90,100 in 2009. So businesses must decide whether Sterling will weaken or strengthen between now and 30 September.

    Forward exchange rates currently stand at around 82p per euro. This might appear attractive, given concerns over the long-term viability of the euro. But the recent €130 billion Greek bailout and the possibility of a downgrading of the UK’s credit rating could swing sentiment the other way.
     
    A look at the range of exchange rates on 30 September over the life of the current Single Farm Payment shows that today’s forward rates are better than those in four out of the last seven years, although they are lower than in the last three years:

    2005: 68.2p
    2006: 67.7p
    2007: 69.8p
    2008: 79.0p
    2009: 90.1p
    2010: 85.9p
    2011: 86.6p

    A logical approach might be to sell forward half the expected payment at a level which compares well with the lowest rates of the past seven years. As ever, Savills experts would be happy to advise on methods of managing the risk.

     
     

    Key contacts

    Andrew Wraith

    Andrew Wraith

    Director
    Food & Farming

    Savills Lincoln

    +44 (0) 1522 508 973

    +44 (0) 1522 508 973

     

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