Exchange Rates

The Pound has strengthened against the Euro in recent weeks – it has moved below the €1 = 82p mark (£1 = €1.22) on a number of occasions.  Indeed, Sterling has been gradually gaining ground since the autumn.  As we have said many times, a strong Pound is generally bad news for UK agriculture.  The effect of this strenghthening on feed wheat is around  £8 per tonne off the ex-farm price.  Other commodities will be similarly affected, as will the Single Payment if the Pound continues to move in this direction through to the end of September.

As ever, future exchange rate movements are impossible to predict.  However, recent Bank of England forecasts predict the UK economy will grow by 3.4% in 2014.   This is double the estimate for Germany.  All things being equal, a higher UK growth rate than in other countries would be expected to see the Pound strengthen.  It seems unlikely that interest rate moves are going to shift currencies much in the near future.  The Bank of England has revised its ‘forward guidance’ on base rates.  Instead of looking at unemployment it will link its interest rate decisions to a ‘basket’ of factors.  What this appears to mean is that the Bank is trying to tell the markets that it is unlikely to raise base rates until the latter part of 2015 at the earliest.  There is no imminent sign of movement in EU or US rates either.

As the time for completing Single Payment applications approaches again, farmers will be prompted to consider fixing their conversion rate.  It should always be remembered that the idea of fixing is not to ‘beat the market’, but provide a level of certainty and risk management in a business. 

The pound has been gradually gaining ground on the euro since autumn drilling time. The difference to a tonne of wheat is £8 off the ex-farm price simply because of it. Other commodities will have been affected too as will the impact on the last . Some SP recipients might be tempted to consider fixing their SP now at the current exchange rate. Remember though, it is important not to fix the exchange rate now as a speculation that currency will move, it will be a 50:50 guess, but it can remove a level of risk from the business and provide some budgeting certainty