UK farmers make hay while the Euro shines

This week saw a hefty €3.5 billion for sterling order hit the currency markets. Not a hedge fund speculating on the British economy but British farmers who chose to receive their Single Farm Payment (SFP) in Euros and not sterling.

The UK farming community could be in line to receive an average 17% increase on their annual subsidy if they convert their chosen Euro cheque back into the weaker sterling, this equates to a potential £350m boost to the industry.

On Wednesday the European Commission fixed the price at 1.0997 the weakest sterling conversion rate since the SFP was introduced in 2005.

In practical terms this means a €20,000 payment which would have converted to £13,936 in 2007 and risen to £15,806 in 2008 has risen £4,250 to £18,186 in 2009 meaning farmers are looking at a 30% increase over two years. Farmers who think sterling will drop yet further can risk holding onto their Euros in a Euro account and convert back to sterling at the optimum rate.

However, with volatility at a high, Mark O’Sullivan, Director of Dealing at city FX provider Currencies Direct provides a caveat:

"The plummeting pound has provided shrewd farmers with the opportunity to make some savings over the past two years. However the market changes very quickly and we could see a different picture in a year’s time. UK Farmers will have to carefully consider whether taking the 2010 SFP in Euros is such a good idea".