It’s that time of year again: the European Union will make its annual single farm payment to the UK’s Rural Payments Agency for distribution to farmers. The payment under the Common Agricultural Policy is made in euros; while farmers can elect to be paid in the common currency, we hear the vast majority have decided to be paid in GBP. The amount for conversion on September 30 is said to be upwards of €3 billion. That seems to have been the market estimate in previous years but data from the Rural Payments agency shows that payments made by it amounted to about £1.9 billion last year, equivalent to €2.1 billion at last year’s fixing. Still, two-and-a-bit yards is enough to make a splash in the EUR/GBP pond.
Apparently the executor of the order has been decided. In previous years there was a good chance of making a few bob out of it, but we’re not so sure that is still the case. Two years ago, the payment was largely off the market’s radar, even though this particular method has been used since 2005. By last year word had got around and the bank with the order is said to have got somewhat hurt, running into a bit of market pre-emption, a Reuters glitch and a bout of intervention in EUR/CHF by the SNB (Fun on the farm – or why FX is never predictable).
This year, it is highly unlikely that anyone concerned with FX will be ignorant of the order by Thursday week nor, quite possibly, which shop is trying to fill it. It would make an interesting question in the ACI exam: “You have an order to sell 2.2 yards of €/£ at the 1.15pm ECB fix on Thursday week and the whole market knows you do, how do you proceed?”
An old friend of mine reckoned: “If you had the order and some nuts, you’d still leave yourself a yard long at a quarter past one”. Or maybe he said: “If you had the order and were nuts…”, I’m not sure, he does mumble a bit these days.
The farmyard fun and games won’t last forever; the single farm payment system will likely be scrapped in 2013.
