The 14% weakening of the pound against the euro over the past four months should already be helping UK producers and might present a basic payments benefit later in the year, according to rural accountants, Old Mill
“Although grain, milk and meat values are all tracking well below last year’s levels, the weakening pound could be providing some respite for producers,” said Old Mill director, Mike Butler (pictured above).
“In simple terms, if the pound is 14% weaker that should make our exports to the Eurozone 14% more competitive. At the same time it must be remembered that it is also makes all imported commodities, including energy, 14% more costly.”
Adding that he hoped no wholesalers or traders were currently profiting by holding back some of business gains available from potentially lower export prices, Mr Butler said that with milk and pig prices as low as they are, a 14% increase could be the difference between profit and loss for a lot of primary producers.
“There is no question that imported milk has been coming in from the Continent, but that should have become less competitive,” he said. “In addition, most of our cull sows go to Germany so we’d expect export prices to start picking up.”
He also highlighted another important impact that the weaker pound might have on the future value of farmers’ Basic Payments, which are converted from euros to sterling on September 1 each year.
“In 2015 the conversion rate was €1.37 and now it would be around €1.23,” he said. “Across a 300ha farm that would be worth around an extra £4,000, assuming our relationship with the EU remains constant.”
Farmers can lock-in to forward rates for such payments, of course, taking early control of how much the annual euro/sterling conversion is worth.
“In the past decade farmers have had a mixed experience of the varying ways in which they can lock into current exchange rates,” commented Mr Butler. “Although they may take the view that the pound could weaken further ahead of the June referendum on membership of the EU, nobody knows for sure what will happen either before or after the vote.
“In a time of tremendous uncertainty, both in economic and commodity market terms, locking into some sort of security could be worth considering, therefore. However, it should only be considered after taking professional advice on your personal situation and your attitude to financial risk.”