With favourable exchange rates boosting single farm payments (SFP) across the UK, Lloyds TSB is urging farmers to use any additional income wisely. Fixing rates forward can also prove an important tool to help farmers manage future currency volatility.
The weakening of the pound against the euro over the last year will benefit farmers receiving the support payment from the beginning of 2010. The exchange rate, based on the European Central Bank’s rate, was set today (30th September) at £0.90930 to €1. This is 15% higher than the 2008 rate and 30.5% higher than the rate set two years ago. In England and Scotland a small part of this exchange rate gain will be scaled back through marginally higher modulation - the withholding of payments for rural development schemes.
“The increase in the value of payments will be welcomed by farmers,” says Gareth Oakley, Agriculture Director for Lloyds TSB Agriculture and Bank of Scotland.
“It means that farmers will have extra SFP income that will be paid in the first six months of 2010 and I would urge them to consider now how best to use that extra income.”
For some farmers that might mean reducing borrowing, but for others it will mean investing in projects that add to the profitability of the business.
“We are finding that many farmers are benefitting from capital investments such as installing boreholes or wind turbines, while others are investing in NVZ schemes or grain storage,” says Mr Oakley.
“It is important to discuss with your bank manager and other financial advisors how to maximise the benefits of any extra single farm payment income you receive next year.”
The current weakness of the pound against the euro also continues to provide longer-term opportunities for farmers looking to fix exchange rates in the future.
“We don’t expect the pound to weaken to a level where it is worth as much as one euro and those holding off until it does might be disappointed,” says Trevor Williams, head of economic research at Lloyds TSB Corporate Markets.
“Taking into account the state of the UK and eurozone economies, we believe a fair value for the pound is around 87 pence to the euro.”
The weakening of the pound over the last year has meant more farmers have opted to fix exchange rates to maximise the value of payments, with many doing so for more than one year. Lloyds TSB can fix the exchange rate for its customers right up until 2012.
“By fixing exchange rates farmers can optimise future single farm payment income easily and simply, without having to set up separate euro bank accounts,” says Mr Oakley.
Although some farmers were able to fix at favourable rates of more than 90p to the euro at the beginning of 2009, most arrangements were made in the 87p to 88p range in the spring.
“The single farm payment is obviously important to most farm businesses. In these days of volatile commodity prices and exchange rates, doing what you can to maximise income and create opportunities makes sound business sense,” concludes Mr Oakley.
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