2013-03-27 xml
Consider Fixing your Single Farm Payment, says Lloyds TSB Agriculture

Farmers should consider whether to fix at least part of their single farm payment (SFP) to build some certainty into their incomes in the face of the current movements in the Sterling Euro exchange rate, according to the leading banking services provider to the sector, Lloyds TSB Agriculture.

Farmers typically incur expenses in Sterling and therefore if farmers are planning on the basis of a particular level of Sterling equivalent income from Single Farm Payments, which is denominated in Euros, they may want to consider agreeing the exchange rate through a forward contract.

Alick Jones, Lloyds TSB Agriculture Policy Director

Alick Jones, Lloyds TSB Agriculture Policy Director

Alick Jones, Lloyds TSB Agriculture Policy Director, said farmers should think about how they receive their SFP as they fill in their applications over the coming weeks, rather than putting off the decision until later in the year.

Speaking at an economic update meeting for rural professionals in Towcester , Mr Jones said many farmers are likely to have strained finances as a direct result of the effects of last year’s terrible weather. Therefore, building in some certainty to farm finances now rather than waiting to see what the exchange rate on 30 September means for the sterling value of the SFP, could ease the pressure on some farmers.

“This is the time to think about whether to protect this part of your income before you get tied into essential farming work over the summer and either forget or are rushed into a decision,” Mr Jones said.

“Take advice now and decide the level of exchange rate your business can accommodate; then if you do fix part of the payment you can at least build certainty into a proportion of your income.”

Mr Jones said if farmers are able to control how much they receive in their SFP, it would help to build in certainty into their balance sheets and in some instances the difference made through managing the exchange rate could be substantial.

“Getting the right advice is key and it could impact your income by thousands of pounds,” he said.

“Three or four pence difference in the exchange rate might not seem like a lot, but over substantial sums such as a £100,000 Single Farm Payment, it could mean an extra £4000 so it’s definitely worth considering.”

At the same event, Trevor Williams, Lloyds Bank Commercial Banking Chief Economist and member of the Shadow MPC, said volatility in the eurozone made it more important than ever for farmers to look into fixing at least a proportion of payments at a rate they were comfortable with.

“It is always important to look at hedging payments and at a time when farm costs are going up and incomes are constrained, it becomes more important to understand what your business finances will look like at any given point” he said.

“Exchange rates are difficult to predict. For example Sterling was £1.70 against the Euro five years ago and it reached a low of £1.14 two weeks ago. It is also worth noting the likely timing of government elections within Europe and their potential impacts - a possible re-run of the Italian election could happen in September, the same time as Germany goes to the polls, and the same time as the single farm payment exchange rate is set.

“This volatility doesn’t show any signs of abating for a while, so I would expect to see more farmers fix this year.”

Lloyds TSB’s specialist agriculture managers are able to assist those farmers who are considering hedging some or all of their single farm payments.

Lloyds TSB

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