The sight of the loonie soaring against the sinking U.S. dollar stirs many Canadians’ hearts.
But as the U.S. dollar sinks, so do returns for many prairie farmers.
“We’re getting fewer Canadian dollars for the same product,” said Don Hrapchak, general manager of Saskatchewan’s producer-owned hog marketing agency, SPI Marketing Group.
Almost all of the main prairie agricultural products, including grain, oilseeds, hogs and cattle, are sold at prices fixed to international markets, which are based on the U.S. dollar.
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For Hrapchak, that means each hog he sells is bringing in fewer Canadian dollars than it was just a few weeks ago. In January, many hog formula prices were based on an American dollar being worth $1.57 Cdn.
Now, an American dollar is worth $1.46. That means producers are getting 11 fewer cents for every U.S. dollar, on both domestic and export sales.
The recent Canadian Wheat Board Pool Return Outlook noted the dollar’s soaring value, and pegged it as one reason for lowering price expectations for wheat.
“Most business in the grain trade is done in U.S. dollars,” said wheat board market analyst Peter Watts.
“You have to compete in U.S. dollars and it means a lower return for Canadian farmers when you have a stronger Canadian dollar.”
Manitoba Agriculture market analyst Janet Honey said the sudden rise in the Canadian dollar puts Canadian producers in an unfamiliar situation that they may have trouble accepting.
“The exchange rate is part of formula calculations, and that means lower prices for both cattle and hogs, because those are both based directly on U.S. prices,” Honey said.
American hog producers have seen pig prices generally decreasing over the past 20 years, while Canadian prices have stayed relatively even. But Honey said that evenness was a result of the Canadian dollar’s decline, which masked the lower U.S. dollar bids for pigs. Buyers were offering fewer American dollars for each pig, but the Canadian dollar’s decline offset the lower U.S. price.
Now that the trend has reversed itself, Canadian farmers are experiencing what American producers have seen for years.
Honey said she will need to reevaluate her estimates for pig prices this year if the dollar remains strong. In January she was expecting hog prices to increase by 20 to 25 percent over the course of the year, but the stronger Canadian dollar will reduce returns significantly, possibly cutting the increase to 10 to 15 percent.
Honey said currency effects can be deceptive. Many producers might assume a Canadian dollar increase to 68 cents US from 65 cents would mean a three percent decline in prices, but in fact it is a 4.6 percent decline.
But Honey said it’s not all bad news.
Hog producers have to sell market and weanling pigs for fewer Canadian dollars, but they can also buy imported American corn for less. And since many feedgrain prices follow American prices, they should drop as the Canadian dollar appreciates.
Al Mussell, a researcher with the George Morris Centre, said many input prices are also based on U.S. prices, so farmers might see benefits that way. Much farm machinery and technology is produced in the United States, which should become cheaper.
And he said farmers shouldn’t desire a permanently depreciating currency, because while it may appear to bring better prices, it also disguises a general decline in the economy.
Honey said both commodity and input prices have to be considered when evaluating the effects of a strengthening dollar.
“It’s the net affect that counts,” she said.
