How much money have prairie farmers been losing because of the Canadian dollar’s sudden rise to almost 74 US cents?
Commodities futures trader Ken Ball of Benson Quinn-GMS is willing to make a guess.
“This last move in the dollar … has probably knocked $30-$60 (per tonne) out of the price of canola,” said Ball.
“It’s quite probable that if the dollar was at 63 (US) cents, that canola would be at least $50 higher than it is now.”
Canadian pride may rise when the dollar climbs, but farmers’ pockets get lighter.
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Farmers who sell directly to U.S. buyers immediately see their returns fall, but it also affects less obvious markets.
For example, canola is traded on the Winnipeg Commodity Exchange in Canadian dollars. But canola’s value is strongly linked to the price of soybeans and soy oil, priced in U.S. currency.
When the Canadian dollar was worth 63 US cents, $100 US worth of soybeans was worth about $159 Cdn. With a 74 US cent loonie, the same amount of soybeans is worth only $135 Cdn.
The Canadian dollar’s appreciation is also hammering farmer returns for Canadian Wheat Board grains. Almost all CWB sales to foreign buyers are made in U.S. dollars.
The board uses currency futures contracts to protect against fluctuations on existing sales contracts, but not on unsold old crop or next year’s crop.
So the loonie’s appreciation has weakened old and new crop pool return outlooks.
“It’s not just affecting prices today. We’re anticipating it’ll have a longer lasting effect into the new-crop period and perhaps beyond,” said CWB marketing analyst Dave Simonot.
“It looks like it’s here to stay.”
Simonot estimates that the stronger loonie has cut 15 percent from the prices that can be charged for Canadian commodities. Farmers have seen currency fluctuations for decades, but the speed and scale of this turnaround is stunning.
“The move we’ve seen over the last several months has been unprecedented in the last decade or two.”
Simonot said many of the world’s major currencies have appreciated against the U.S. dollar. But some importers have their currencies closely tied to the U.S. dollar, and when that falls, so does their buying power.
Over the past two decades Canadian livestock producers enjoyed an advantage due to the weakening loonie. Now hog and cattle exporters suddenly find the currency working against them.
Cow-calf producers can hold their animals back to see whether the currency tempest can be waited out. But cattle feedlot operators or slaughter pig exporters are caught in a price vise.
“They had to buy the feeders with a weak dollar and have to sell the slaughter cattle with a stronger dollar,” said George Morris Centre analyst Al Mussell.
“They get caught by the time delay.”
The exchange rate change also affects farmers’ investments in facilities or machinery to produce export products. If the investment has been based on likely returns using U.S. price averages, a stronger Canadian dollar will weaken returns. That makes it harder to pay for the facilities and equipment.
“For building and equipment costs you eat the currency risk at whatever the price was at that point in time,” said Mussell.
“There’s no offset.”
According to economists, farmers should be compensated by dropping prices for imports from the U.S., such as farm machinery.
But input costs don’t fall right away.
Ball said those who import U.S. equipment and goods and sell them to Canadians aren’t keen to cut their prices immediately.
“The retailer is going to try to hang onto his prices for as long as he can,” he said.
“Farmers see the price of their commodities fall immediately, but they don’t often see the price of the inputs they have to buy fall at the same time.
“It’s what farmers always say: the problem with farming isn’t the prices, it’s the costs.”
