As the Canadian loonie hovers near the American greenback, cow-calf producer Travis Toews watches his revenues decline and his costs increase.
“We concluded in about five years, we will hopefully adjust the lion’s share of our cost structure in this new reality,” the Grande Prairie rancher and president of the Canadian Cattlemen’s Association said at the International Livestock Congress in Calgary.
He sees cow-calf profitability as an issue where producers face off against the weather, volatile feed costs and the potential for the currency to rise above par with the U.S. dollar.
Read Also
Land crash warning rejected
A technical analyst believes that Saskatchewan land values could be due for a correction, but land owners and FCC say supply/demand fundamentals drive land prices – not mathematical models
The dollar was around 63 cents in 2002-03 and the Conference Board of Canada predicts the loonie will break par at $1.02 to $1.03 by 2011.
“Currency is the untold story in our industry. We have seen excessive appreciation in the last couple of years and it is not going to go down any time soon,” Toews said.
“If you compute a 63 cent dollar on today’s U.S. cattle prices, it makes your head spin. We would be in pretty good times if we had that kind of a dollar,” he said.
A study by the North American Beef Research Institute explained if Texas steer prices are $80 per hundredweight and the exchange rate is 79 cents, then the adjusted Canadian price is $101.27.
CCA has spoken about the hardship of the changing currency with the Bank of Canada.
“We have let them know what this quickly appreciating dollar is doing to the industry. They are not going to micromanage the currency based on our sector but by the time they received the data and were told the economic context, there has been a lot of damage done,” Toews said.
“Our industry grew significantly at a time of a declining dollar during the ’90s and that dollar allowed us to mask inefficiencies in terms of our regulatory inefficiencies and in some cases in structural and production efficiencies.
“It is incumbent on us as an industry to ensure that we deal with those whether they be regulatory or whether they require some structural adjustment within the industry,” Toews said.
The beef institute study concluded cow-calf and feedlot operations incur significant short-term losses when the dollar changes.
It said the full burden of the rising dollar falls on cow-calf operators because the loss in value is incorporated into the value of fixed assets like land. Feedlot operations can return to acceptable margins in the longer term by simply paying less for feeder cattle.
Glen Hodgson of the conference board said Canada faces a big challenge because its currency is closely linked to world oil prices.
The floor for oil prices is around $70 to $80 US per barrel and if it rises to $85to $90 a barrel, it puts pressure on the loonie.
