Currencies go crazy
Two weeks ago, currency weakness in southeast Asia kicked the legs out from under world stock markets.
North American stock markets bounced back, but currency concerns are keeping things volatile.
While much focus has been on the freefalling Indonesian rupiah and Malaysian ringgit, the Canadian dollar also drifted lower.
Last week, the loonie briefly slipped below 71 cents U.S., the lowest level in 21Ú2 years and about 1.5 cents down from early October.
As we reported last week, southeast Asia has become a major market for Canadian grain. Weaker currencies there mean grain imports become more expensive. The possibility arises they will reduce purchases and eat cheaper rice.
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This thinking influenced commodity traders and lowered prices for wheat and some feed grains.
The concern might be over-blown. A year and a half ago, grain prices were at all time highs and yet Asian demand for wheat still grew.
Wheat-based foods are now staples for many in Asia and a stumble in the economy will probably affect luxury consumer goods long before it affects diet.
Meanwhile, the lower Canadian dollar affected cattle prices in Canada.
Brenda Schoepp, who writes Beeflink, a cattle newsletter out of Stony Plain, Alta., says the lower dollar was behind much of the recent strength in fed cattle cash prices.
Schoepp is more optimistic than many in calling for a fairly strong cattle market in coming months. But she notes the strong possibility of the loonie rising back to pre “Asian jitters” levels.
Now is probably a good time to talk to your broker or banker about ways to protect against this currency fluctuation.
Herb Lock, who writes the Farm-Sense Marketing newsletter, says most feedlot owners have the marketing sophistication to constantly hedge against currency changes, but cow-calf producers don’t.
Yet currency fluctuations affect cow-calf farmers in all sorts of ways. A dropping dollar might be good for cattle prices, but it increases the cost of imported items and will probably lead to higher interest rates.
Overall, Lock thinks currency changes are a risky uncertainty producers would be wise to mitigate.
“It is a wild card in the cattle business that prudent risk managers simply offset so they can get on with the business of analyzing price opportunity,” he said.
Hedging with currency futures contracts that come in $100,000 lots might seem daunting, but protection for smaller amounts is available through banks.
