Finding ways round euro woes

Published on Tuesday 3 October 2006 00:35

THE euro exchange rate at which single farm payments will be made for 2006 is 67.77p, as set by the European Central Bank on the crucial day of Friday, 29 September.

That is down on last year's set rate of 68.19p and well down on the 71p forecast by some analysts earlier this year.

But the amber warning on euro exchange rates has been showing for weeks and, recognising a train coming when they saw it, more farmers than last year have opened accounts to be paid in euros.

That means they will be able to select what they hope will be a better exchange rate at some future date.

Clydesale Bank, whose analysts did not forecast 71p, think they have more astute customers than most.

David Douglas, head of rural business at the Clydesdale, said yesterday: "We've been opening euro accounts for customers throughout the past year, but there was a significant increase in requests during the last two weeks."

He would not say how many euro accounts had been created, claiming only that "the number is substantial." But he went on: "After taking the euro option, it is important that businesses now go on to extract full benefit from their decision.

"This applies equally to those who plan to use their new euro income stream to fund euro-based borrowings or purchases and those who simply want to make their own choice about when to change their single farm payment into sterling."

Some farmers had been even smarter than that, he suggested, explaining: "A number took the opportunity earlier this year to forward-sell their single farm payment euros for a spring 2007 value of more than 70p. While this only involved a simple currency planning process, it has created a potentially valuable exchange rate gain.

"For example, last Friday's euro/sterling rate of 67.77p will mean a reduction of about 1.5 to 2.0 per cent on their payments' sterling value last year. But any farmer who sold euros forward at or above 70p will be looking at a benefit of around 2.5 to 3 per cent over last year's sterling rate and a benefit of slightly more than 4 per cent over Friday's exchange rate."