Preparing For Brexit

As a British exit from the EU marches onward, it sometimes fades from the general consciousness, but planning on doing business in a post-exit world is something all US industry should be doing.

In that vein, Agrimoney prepared a white paper on preparing for business after the Brexit.  The following are some highlights of that paper.

Preparing for business in a post-Brexit era cannot be straightforward in the absence of any hard facts.  For almost all businesses involved in agriculture, trade deals and agricultural policy will shape the future.

Details on trade deals and policy currently are not available, but Agrimoney advised considering best- and worst-cast scenarios for their business and how best to deal with things to maintain profitability in the face of radical change.  Formulating business plans and budgets as well as having a close grip on the cost of production all will help with bank loans should additional financial support be necessary.

When available, options like forward contracts for currency or commodities should be considered to reduce uncertainty, Agrimoney said.  Keeping a close eye on world markets and political developments and how they relate to possible changes from the Brexit also would be advisable.

 

THE IMMEDIATE PROBLEM

 

The problem many businesses have is that there still are scant details about how the exit will work and how even UK businesses will react.  Agribusiness will be more affected than most industries as changes in trade policy could have huge effects on market access.  In turn, farm gate prices for crops and livestock could be affected greatly.

Short term, there are several issues that all of agribusiness should be considering:

  • Dealing with a nervous business world.
  • Changing trade regulations and agreements.
  • The effect of immigration changes.
  • Changes to farm subsidies.
  • Preparing for currency volatility.

Current Brexit negotiations are focusing on three areas: citizens’ rights, the Northern Ireland border and the financial terms of the exit.  Nothing about agriculture.

The second phase is when negotiations into trade relationships are scheduled to be considered.  However, this won’t take place unless the EU’s chief negotiator, Michel Barnier, feels enough progress has been made on the initial phase.

That is a problem for many since knowing what to do and how to prepare is not straightforward, particularly for those whose main income comes from agriculture or supplying the agriculture industry.  The UK is set to adopt its own replacement agricultural policy after discussions on tariffs and trade, so it is difficult to imagine possible outcomes.

An increasingly nervous business world, with rising inflation and potentially rising interest rates, could affect costs, sales and debt.  Economic growth has slowed, part of the economic consequences of the Sterling’s weakness.

When dealing with the UK, banks may require more complete business plans, so the upshot is to plan, plan, plan.

 

CATTLE, BEEF RECAP

 

One pen of Texas fed cattle sold on the Livestock Exchange video auction at $120 per cwt Wednesday.  No sales were reported last Wednesday.

No cash sales were reported yet this week.  Late Friday, cash trading took place at $116 to $119 with some at $119.50 per cwt on a live basis and $182 to $186 dressed.  Cattle traded the previous week was at $110 to $112 live and $174 to $175 dressed.

The USDA’s choice cutout Wednesday was up $0.95 per cwt at $207.39, while select was down 0.19 at $193.71.  The choice/select spread widened to $13.68 from $13.68 with 123 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Tuesday was $157.34 per cwt, up $0.42.  This compares with Wednesday’s Nov settlement of $159.70, up $0.27.