The Canadian dollar is always a major consideration in the beef business.
“As the dollar started to sink, so did the cattle markets,” Brian Perillat, senior market analyst for Canfax, said at the Canadian Beef Industry conference held in Calgary Aug. 9-11.
The movement of currency rates can wipe out profits or result in a windfall. The loonie has averaged 80 cents since the early 1980s and now sits at around 77 cents.
“An 80 cent dollar is not a bad thing,” Perillat said.
However, an 87 cent dollar would wipe out profits for cow-calf producers. A five cent swing is a 25 cent per pound change in calf prices because Canadian prices are based off the U.S. market.
Douglas Porter, chief economist with the Bank of Montreal, said the Canadian dollar tumbled to a 13 year low because the Bank of Canada decided not to increase interest rates while the United States raised its rate.
He told the beef industry conference that the dollar will remain around the same level well into next year.
He said a lower dollar helps support tourism, resource producers and exporters, but the average consumer loses because it pushes up the price of imported goods.
He predicted that the U.S. will raise rates after the presidential election in November and maybe twice again next year.
“Even by the end of next year, these are still incredibly low interest rates that we are dealing with across North America,” he said.
The 10 year government bond yield fell below one percent in the first part of August. It means Ottawa can borrow for one percent a year for 10 years, which is good for government but not savers.
Many countries, such as Japan and those in Europe, are experiencing negative interest rates, and economic growth has been sluggish.
India has a growth rate of 7.9 percent and China is at 6.7 percent, but Canada is behind at 1.1 percent and the U.S. is 2.5 percent.
“Most of the industrialized economies are somewhere around one to two percent growth. That is a bit disappointing. Almost every industrialized economy feels like it can’t get into second gear,” he said.
“We are not in recession outside of Brazil and Russia, but we are struggling to find that second gear and we think that continues in 2017.”
The price of oil plays a role in the overall weakness of the Canadian economy and currency.
“For every $10 move in oil prices, you get a three cent move in the Canadian dollar in the same direction,” Porter said.
For example, $50 oil would get the dollar back to 80 cents and it would achieve parity at $100 oil.
It is now stuck around the low $40s but could hit $50 next year. He put the normal price of oil at around $55 per barrel.
A stronger U.S. economy and a weaker loonie bodes well for Canadian exports.
“This is one area of real opportunity and potential in the years ahead,” he said.