Euro strength boost for cereals

THE recent slide in the value of sterling against the euro might bring substantial benefits to the cereal sector, according to the Home Grown Cereals Authority.

Should sterling continue to trade just above 71p throughout June, HCGA calculates that farmers will receive 23-30 per hectare more through the Arable Aid Payment Scheme (AAPS), the value of which is fixed on the rate of exchange on 1 July.

The current rate compares favourably to the 64.4p of last June and should result in AAPS payments of about 256 per hectare on low-ground farms, even after support is modulated, or taxed, at 3.5 per cent.

The weaker rate of exchange is also tending to push cereal prices higher, with feed wheat for immediate delivery dearer by 1-2 per tonne in the past ten days. HGCA also states that since January UK feed wheat has risen by 12 per tonne to 70 per tonne ex-farm.

However, in euro terms UK feed wheat has increased by only 10-100 (7-71) per tonne. On the continent, intervention buying is underpinning the market as a result of the monthly increments, but the futures market for May has recently fallen by 3.50 (2.48) per tonne.

The unpredictability of currency markets is making price forecasting difficult. However, HGCA reports that traders are offering 65 per tonne ex-farm at harvest 2003 for feed wheat. That is about 10 per tonne above last year’s harvest values and suggests that all grains, including malting barley, should trade at higher prices later in the year.

But much will depend on the North American harvest. The US Department of Agriculture has given a provisional forecast of 58 million tonnes of wheat for 2003, which represents a significant increase on the previous year.

In Europe, meanwhile, crops reports are mixed. Russia and the Ukraine suffered a high degree of winter kill, while the dry conditions of this spring have held back growth in France, Germany and parts of southern England. However, Spanish crops are said to be looking well and the prospects appear good for high yields.

A weaker rate of exchange between sterling and the euro is generally beneficial to UK agriculture. However, in a move designed to allow farmers to protect their businesses against currency volatility, the Clydesdale Bank and the Yorkshire Bank yesterday launched a "hedging" scheme.

Henry Graham, head of agriculture with the banks, said the hedging arrangement was designed to allow growers to lock-in at today’s rates, paying a risk premium of about 1.5 per cent to cover themselves against a slide in euro values during June.

The arrangement, which is not confined to customers of the banks, is structured so that if the euro strengthens between now and 1 July growers will still get the full benefit of the higher rate.