Slower growth adds to volatile market forces

Farming correspondent

Saturday 16 June 2012

Slower world economic growth is influencing demand, and seasonal fluctuations in climate are affecting supply.

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Market round-up ROG WOOD

As a result, markets have been particularly volatile, both on the input and output side. This has been compounded by fluctuations in exchange rates, notably the weakening of the euro against sterling.

That was the verdict of Jimmy McLean, head of Agricultural Services at the Royal Bank of Scotland, on the current situation in Scottish agriculture when he briefed farming journalists in Edinburgh yesterday.

Mr McLean pointed out: "There is a pretty close relationship between the strength of the euro and the profitability of the sector. As the euro weakens against sterling, so farm profits tend to decline and when it strengthens the converse is true. This is partly because of the influence of the euro on the sterling value of the single farm payment [SFP]."Current forecasts suggest the euro/sterling exchange rate will be approximately 81p at the end of September. If this turns out to be correct then those taking their SFP in sterling – that's likely to be 85 to 90% of farmers this year – will see a fall of 6 to 7% in their payment compared to last year".Mr McLean revealed that the number of farmers electing to have their SFP paid in euros is down by about one-third this year. He said: "Any hedging in volatile markets has the potential to create significant 'winners and losers' come the settlement date."For this reason, some farmers may be hesitant about using currency hedging for their SFP this year. However, it is misleading to think of hedging in terms of winning and losing. Hedging is not about beating the market."Managing exchange rate risk is no different to managing other forms of business risk. The primary objective of exchange rate hedging should be to reduce currency-related risk to an acceptable level. When markets are volatile, it is even more important to have an appropriate hedge in place".Messrs Craig Wilson Ltd sold 104 store bullocks at Ayr on Thursday to average 208.9p per kg, or £789.71, while 80 store heifers levelled at 201.4p, or £786.United Auctions sold 750 prime lambs at Sterling on Thursday to a top of £105 per head and 226p per kg to average 200.4p (-1.1p on the week).The Cumberland and Dumfriesshire Farmers Mart had a larger show of 1369 prime lambs forward in Longtown on Thursday that sold to £106.50 and 228p to average 210p. A similar show of 1338 prime hoggs were fully 10-15p per kg dearer on the week, selling to £98.80 and 187p and averaging 155p.The 4732 cast sheep forward met a similar trade to last week,. Heavy ewes sold to £149.50 for Texels and averaged £86.73, while light ewes peaked at £79.50 for Cheviots and levelled at £58.33. Cast rams sold to £149 for a Leicester and averaged £101.73.

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Slower growth adds to volatile market forces

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