Take your SPS in euros and get on with everything else, advises David Hughes
Maximising the value of the annual single payment system (SPS) is a major part of financial planning for farmers, even more so with the weakness of the euro against sterling. While top quality SPS management has enabled some businesses to extract more from this process than others, there’s never been a guarantee that the ‘correct approach’ will deliver the best result.
Despite this, I believe taking the SPS in euros, backed by an early commitment to the best available fixed conversion to sterling rate, will deliver the best result at least eight years out of 10. Even in the other two years, early knowledge of what you’re getting creates opportunities.
Knowing in June, for example, what your SPS will be worth in December, creates a six-month spending, investment or payment window, based on a secure inflow of cash. This clears the way for deals to be struck with suppliers when they know other farmers are still waiting for SPS rates to be agreed under the average e:£ balance for September.
There’s also time management to consider, especially with grain and dairy returns under severe pressure and needing maximum management attention to draw the very last £1 out of the marketplace.
The outworking of the CAP Reform package is also going to add to management demands going into 2015. Why add SPS management into that timeframe if it can be avoided?
Two local farmers, both of whom elected to take their payment in euros, found their 2014 SPS experience was a let-down, compared with previous years. The first, who is set to receive over 90,000 in SPS later this year, fixed 80,000 of his payment at an average of about 81.5p in January 2014. That means he is now more than £2,000 better off than if he’d merely waited for the centrally set rate. He’ll still be ‘playing the market’ until December/January, to extract the best from his unfixed 10,000-15,000.
“What a lottery,” he said, before adding that he was still grateful to have SPS, even at 2014 rates and volume, given that his wheat is heading for sale at £100/tonne, and still falling.
The second farmer, who secured an SPS fixed rate of 85p last year, didn’t seek an early fixed rate this year and is looking at a £21,000 decline on his 2013 payment. This, along with the grain price fall, will have a major impact, he told me. The only way he could see UK grain prices rising was if the pound became weaker, a move which would also help reduce the hit he looks like taking on SPS when he decides to convert to sterling. He did add, though, that the euro doesn’t look like it will strengthen any time soon.
Both these people have handled SPS pretty well over the years, but nobody wins all the time, so don’t drive yourself mad attempting the impossible.
• David Hughes runs a specialist rural solutions business in Norwich.