You may have read the article in the Farmers Weekly recently about locking in your Single Farm Payment at the current Euro/Sterling conversion

rate. This e-mail attempts to explain the issue and to make you aware of the options available.

Your Single Farm Payment is calculated in Euros by the Welsh Assembly Government. You can then choose on your Single Application Form whether to receive the payment in Euros or Sterling. The vast majority of farmers usually elect to receive their payments in Sterling. The payment is therefore converted to Sterling by the Assembly on the conversion rate on the 30^th of September in that calendar year. (0.79 conversion rate in 2008)

The farmers who elect to receive their payment in Euros are paid in Euros into a Euro bank account which they have set up with the bank. They can then convert these Euros back to Sterling at any time they wish, (most would do so when they received the payment – 1^st of Dec for majority). This effectively means that these farmers can choose to play with the exchange rate if they wish.

The article in the farmers weekly by World First, highlighted the option of forward booking a conversion of your euros into sterling at today’s conversion rate, which is 0.94. They required a deposit of 10% from farmers for this service, however the main banks are offering this service without a deposit.

SO WHAT WOULD YOU GAIN?

The conversion rate in 2007 was 0.69

The conversion rate in 2008 was 0.79

The conversion rate today is 0.94

On a payment of say €40,000 you would have received (before modulation) :-

2007 £27,600

2008 £31,600

2009 £37,600 (at today’s rate)

All you are doing is therefore eliminating the risk that the exchange rate falls back between today and the 30^th of September when the Assembly converts the money.

SO WHAT WOULD YOU LOSE?

The gamble you would take by forward booking a conversion rate is that the pound weakened further and that the conversion rate would improve by the 30^th of September. (Barclays Chief Economist is however indicating that the exchange rate will fall back towards 0.85 towards the end of the year. )

By pre-booking this conversion rate you are entering into a contract to convert your Euros in a certain payment window e.g. 1/1/10 to 31/03/10. If your payment was late for any reason, you would then be in breach of contract. However, the contracts can be extended for a fee.