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Managing meat prices in different currencies

Currencies Direct April 17th 2024 - 3 minute read

Independent meat suppliers face significant challenges when managing costs and budgets, largely due to fluctuations in meat prices and exchange rates. This can create a complex and costly process if not managed effectively.

Businesses in this sector tend to operate globally, importing and exporting meat products to meet demand and take advantage of market opportunities. However, the volatile nature of currency exchange rates can have a substantial impact on their bottom line.

Challenges associated with international payments

One of the primary challenges is the uncertainty surrounding the value of the currencies involved in international transactions. Businesses that supply meat to overseas customers or have operating costs in foreign currencies may find themselves needing to monitor meat prices as well as exchange rate movements.  

A UK-based company that supplies meat to a customer located in the European Union could be affected by fluctuations in the FX market. For example, at the time of agreeing the contract, the GBPEUR exchange rate may have been favourable, however, after a few months, due to economic instability in the UK, there was a sharp drop in the value of the pound. As a result, the customer would still be paying the same amount in euros, but the supplier would receive less pounds. The supplier’s profits would decrease, and they may have to consider raising their prices, reducing their operating costs, or renegotiating their terms to maintain their margin.

This can be equally, if not more damaging, than a rise in the cost of the meat itself. It is therefore important for companies to carefully consider the potential impacts of exchange rate fluctuations and to plan accordingly.

While the demand for meat is typically high all year round, it is still a seasonal business with certain meats such as lamb or turkey in higher demand at different points across the year. It is therefore crucial to ensure that these extremely profitable periods are not damaged by negative currency movements.

What meat suppliers can do to protect themselves

The first step for meat suppliers is to understand where their FX risk exposure lies. For the most part, this will be the currency pair that the majority of their business goes through or alternatively the market where their largest customers are based.

The next step is to ensure that budget rates used in financial forecasts are sensible and monitored throughout the financial period. Significant shifts in the currency market could mean that budget rates used to determine costs, margins and profits throughout the year need updating to reflect current market conditions.

Once risk exposure and budget rates have been determined meat suppliers may decide to implement risk mitigation strategies to protect profits and provide financial certainty. Hedging tools such as forward contracts allow businesses to lock in an exchange rate for up to a year. While they won’t benefit if the rate improves, they will be protected from any negative shifts and be able to budget with certainty, knowing exactly how much will be received when funds are transferred. Due to the importance of managing foreign exchange meat suppliers usually seek expert support in this area to ensure their international payments are being conducted in a cost-efficient manner.

Working with Currencies Direct

Currencies Direct works with a number of meat suppliers helping them mitigate the risks associated with foreign exchange. We have recently partnered with the Association of Independent Meat Suppliers to support their members when navigating international payment challenges.

We offer highly competitive exchange rates, we don’t charge transfer fees and you’ll be assigned an account manager who can provide you with expert insight. We also have an online platform that can be accessed 24/7 and work with our clients to create bespoke hedging solutions.

If you’d like to find out more, please get in touch with a member of our team. We’re happy to help.

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Currencies Direct

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