Are you taking your BPS in GBP or Euros?
- Thread starter JonGoss
- Start date
- Location
- Ceredigion, wales
We always take ours in sterling because we know someone who takes his in euro and fixes and some years we get more than him, sometimes a bit less but there isn't much in it either way by the time you pay fees and commission.
historically over say the last 5 years would you have been on average better off in euro's of GBP ?
Groats.
Hi GTB, agreed to your points, over a long enough time frame it may well even out. However the point of fixing forward is to provide certainty of your payment amount within each year. This then allows you to accurately budget. It's not for all, but it can be especially relevant for certain farms.
Good point - you would have been better off in Euros and hedging. Only about 5% of farms take the payment in Euros though, in addition the sterling value of a €100,000 SFP payment has ranged from £67,770 to £91,000.00 over that time!
- Location
- Ceredigion, wales
Can you give us figures to back this up please?
What about taking it in £ and hedging? I've taken Euros and hedged a few times but either the payment was late or early & we incurred fees settling early or late. Why not take a punt now and settle the difference at the end of September when the rate is known? You could hedge as big a % as you want and decide on the month of expiry when you like.
What about
Yes of course - 5 year moving average of GBP EUR is 1.2050, however in that time we've seen ranges from 1.49 all the way down to 1.0950. I've attached the Bloomberg charts demonstrating this. Worth noting that nobody knows for sure where the markets are going though- the best thing we can do is manage risk!
Attachments
Yeah - to be blunt there are some operators out in our industry who are a bit unscrupulous and will charge for moving the settlement date. We don't do that here, but know that others do. You make a good point about it taking it in GBP - we could offer a service that allows you to take out cover on the other side of the market too. However for most they take out a simple forward contract and take the payment in Euros. Hope this helps!
What is hedging the rate? A bet on the rate being more favourable now than in September. If you're opting for Euros and not fixing a rate then you're betting that the rate in December - June when you get paid in € is better than now, unless you let it sit in a Euro account and exchange when you want it or you think the rate is good.
What kind of contracts do you get for those hedging BPS? Now until September? Now until payment in early new year? Any in £ only (back to back contract?)?
What kind of contracts do you get for those hedging BPS? Now until September? Now until payment in early new year? Any in £ only (back to back contract?)?
- Location
- South Molton
I thought the Irish used Euros now
Reminds me of the very old joke.
Why is the Irish currency called the Punt?
Because it rhymes with Bank Manager.
So we would offer a forward trade - i.e fixing the rate for anything between a week to three years. There is no cost for this product and it allows you to fix the rate if you think it is favourable. Given that we are currently 5% better off than the average rate of the last 6 years then it may be worth considering.
I guess an even simpler way of looking at it is - 'what does it mean to me and the farm if GBP/EUR moves back up to 1.40 (if the answer is it doesn't matter too much, then no real massive need to hedge). However worth noting that it's a difference of 20% from where we are now. We offer currency options too, but perhaps that's a separate topic.. Hope this helps...