When Canada’s dollar was weak, currency hedging held little attraction for Canadian exporters.
But now that the Canadian dollar is worth 83 cents US, exporters, especially hog farmers, are trying to protect themselves.
“A few have gotten scared,” said Lisa Mills, a senior trader with Custom House in Winnipeg, a currency hedging service.
“People weren’t concerned before because they were making a profit off of the foreign exchange.”
The dollar’s rise has hurt Canadian producers’ returns in all commodities, but for those who export directly to U.S. buyers, the see-sawing has caused major swings in profit.
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Roller coaster currency
Since its bottom of 63 cents three years ago, the Canadian dollar has surged, hitting 85 cents a few months ago, sliding to less than 80 cents this winter and recently back to 83 cents.
Where the dollar will end up in the next few months is not known, with predictions ranging from 76-90 cents.
Mills said companies like hers tell exporters that locking in an exchange rate that provides a profit is worthwhile, even if there is some risk that the currency could move the other way.
“It’s definitely not a profit making opportunity (by banking on a declining Canadian dollar) for exporters right now,” said Mills.
“Now, it’s trying to break even and protect revenue….
“There may be times that the contract price doesn’t work in your favour, but you’re still protecting your company or product from downward risk, which is usually much greater than you would have gained (by not locking in an exchange rate).”
Many exporters buy three-month forward contracts, with hog producers often taking out 60 day contracts because of their production flow with weanlings. But Mills said many exporters are moving to longer contracts of up to a year out because of forecasts that the American dollar will continue to drop.
Mills said the main agriculture customers she deals with are those who export directly to the U.S., including soybean and hog producers and farm equipment manufacturers.
