The cheap Canadian dollar provides a significant crop marketing opportunity, said analysts who spoke in Edmonton recently.
When the dollar falls, Canadian farmers get more loonies for every sale on the world market, where transactions are generally priced in U.S. dollars.
“We’re looking at an extremely weak Canadian dollar right now … even though it’s bounced up from its recent lows,” said John DePutter, president of DePutter Publishing Ltd.
“In a general sense, the Canadian dollar is giving the farmer some extra money for his or her pocket. I suggest that you put some of that money in your pocket.”
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DePutter was one of two market analysts who spoke to growers at FarmTech in Edmonton Jan. 25-28.
He and Errol Anderson, president of ProMarket Communications, said the Canadian dollar could lose more value yet.
But they agreed the loonie is nearing the bottom of a persistent downward slide that began three years ago and gained momentum through 2015.
DePutter’s advice to Canadian growers? Strike while the iron is hot.
Growers should not be overly concerned with whether the dollar will lose more ground in the coming months, he added.
Instead, they should take what’s available now.
“Basically, the Canadian dollar is passing a pie around the table, so why not take a piece of the pie?” DePutter said.
“That might involve making a 15 or 20 percent old-crop canola sale. It might involve getting a little bit of new crop production on the books. It might involve making a wheat sale, or maybe you’re feeling a bit undersold in some other markets that are sensitive to the exchange rates.
“It doesn’t matter whether the Canadian dollar has bottomed out or not…. It’s giving you something right now that you want to accept, I think.”
Anderson offered a similar view, suggesting that the American dollar has plateaued. If it pulls back, the loonie might strengthen.
The U.S. economy — presumed to be a stabilizing force in a sea of global economic uncertainty — is beginning to show signs of weakness, he added.
“I don’t know exactly when, but it will be sometime this year that the U.S. dollar will break.”
Anderson painted a bleak picture of the global and American economies.
Signs of instability include massive and unsustainable debt levels in many countries, deflated commodity prices, negative or near-negative interest rates in many developed nations, stalled or at least over-estimated economic growth prospects in the United States and China, devalued global currencies relative to the U.S. dollar and an overdependence on economic stimulus as a means to keep the ailing economies chugging forward.
Anderson said weak commodity prices, particularly in industrial and precious metals such as gold, silver and copper, suggest that the world is now in the bust phase of a boom and bust cycle.
Most commodities, including oil, are trading at a fraction of peak values witnessed between 2008 and 2012.
Anderson said there are signs that tough times may be in store.
Recent attempts to normalize U.S. lending rates have not had their intended impact, he said.
Efforts to stimulate economic activity through monetary intervention have proven largely ineffective, he added.
DePutter offered a similar assessment.
“I think it’s appropriate to say that we are now seeing the bust part of a boom phase in the commodity world.”
DePutter noted American stock markets have shown remarkable resilience relative to markets in Canada, Europe and Asia.
That has some analysts warning that U.S. equities markets are in line for a correction.
“When I look across the commodity world and I see a lot of markets coming off their highs … and then I look at those U.S. stock markets … they’re still up there. They haven’t come down,” DePutter said
“So if you look at a market sector that seems to have a lot of air underneath it, I’d say it’s the U.S. stock market indexes.”
Looking at farm commodities, DePutter said the long-term canola outlook looks bright.
In the short-term, however, canola values could respond negatively to a strengthening Canadian dollar or a large South American soybean harvest.
If, as expected, farmers in South America take off a large crop, North American oilseed prices could soften over the next few weeks.
Global wheat supplies are large and U.S. stocks are being drawn down only slowly.
Those supply and demand factors, combined with the weak loonie, suggest that it is a good time to lock in some prices with incremental sales.
Unlike the U.S, Canada has been exporting wheat at a steady pace, DePutter said.
Canada’s carry-out inventories will be small, suggesting domestic support for new crop prices this fall.
