RED DEER Ñ Beef and cattle exporters need a strategy to protect their profits once the U.S. border opens to Canadian cattle and in case the Canadian dollar becomes even stronger than it already is, says the vice-president of Global Foreign Exchange.
“If you get a chance to do a little bit of hedging and you get a chance to phase in some forward selling, take the chance,” said Michael Levy, who also hosts a radio show on financial issues, during an Alberta beef industry conference in Red Deer Feb. 19.
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“Don’t wait for the ultimate price because if you do, the surprise will come and take it the other way and you’ll miss.”
He is confident the border will open March 7 but exporters need to be careful as markets settle after two years of record prices in the United States and the U.S. dollar devalues.
“We think in 18-36 months in our forecast, the Canadian dollar and the U.S. dollar will be equal to each other or very close to it,” he said.
It’s not unheard of, he added; the two currencies were on par in 1976.
This time around it has less to do with Canada’s economy and more to do with U.S. efforts to reduce its deficits by devaluing the dollar.
“The only way they can turn the tables is to bring the value of U.S. dollar down,” Levy said.
The American debt is increasing by $1.86 billion US per day and as of Feb. 16, U.S. debt was $7.638 trillion. Each citizen’s share of the debt is $25,840.25.
“This is a huge worry in the United States right now,” Levy said.
The U.S. also has a major trade deficit that sees it import $700 billion a year more than it exports.
The U.S. buys goods from India, China and other Asian countries, paying with American dollars. In return, those countries buy U.S. debt instruments such as bonds. China and Japan now own 44 percent of the U.S. debt through bond purchases.
“They are basically financing the debt of the United States,” Levy said.
“Japan, China, Taiwan and South Korea are buying the U.S. debt instruments with the dollars they are earning in order to keep the economies running.”
China’s influence on the world stage is the wild card in this game.
The country’s domestic economy has been growing steadily for the last 18 years but went unnoticed by the West.
For example, 25 percent of the world’s iron and steel consumption happens in China. The country uses 1.5 billion tonnes of coal a year, or 30 percent of the world’s consumption. About 50 percent of the world’s cement consumption occurs in China.
As well, China imported 122.7 million tonnes of crude oil in 2004, a 35 percent increase from 2003. Industry is using much of it.
To feed its 1.4 billion people, China is expected to double its beef imports in the next five years. Argentina is moving into that market and has tailored its export market to fit Chinese specifications.
“They are going along with every single protocol that China wants,” Levy said.
“They are looking into the future so they can export to China.”
