Currency value and grain sales
This past weekend, the Group of Seven leading industrial countries met in Berlin to discuss currency values.
Ho hum. Is Rosanne on the other channel?
Currency issues might seem boring, but they have a significant impact on prairie agriculture.
We saw last fall how a quick rise in the Canadian dollar versus its American counterpart helped push down canola prices.
But most of us haven’t been paying attention to the value of the Japanese yen.
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Last week, concern over the stability of Japan’s economy and financial institutions drove the U.S. dollar to a four-year high against the yen. Since May 1995, the yen has dropped about 40 percent against the U.S. dollar.
The G-7 finance leaders said at the end of their meeting that currencies are no longer “misaligned” as they were 22 months ago, but they didn’t say they were going to act to bring down the value of the American buck.
The rise in the U.S. dollar means that goods priced in that currency, including Canadian canola, have become more expensive for Japan.
Errol Anderson, head of commodity trading with Palliser Grain in Calgary, talked about the yen’s value last week at an Agricultural Institute of Management conference in Saskatoon.
He estimated Japan would buy 10-15 percent less Canadian canola this year, mainly because of the oilseed’s high cost related to the strong dollar.
Japan is meeting some of its vegetable oil needs more cheaply by buying canola from Australia and palm oil from other Pacific Rim countries.
Then again, some of this business might be going elsewhere for reasons other than cost. For instance, the annual snarl at the West Coast can’t be helping Canada’s reputation as a reliable supplier.
Canadian canola exports to the end of January were 1.29 million tonnes, down about 231,000 tonnes or 18 percent from the same time last year.
Not all of that is due to lower Japanese purchases. The Europeans, who have also seen their currency weaken against the U.S. dollar, have bought less.
Anderson thinks because of slower than expected exports, Canada’s ending stocks of canola will be higher than what many analysts predict. This tempers slightly the generally rosy outlook many grain analysts have been painting for 1997-98 canola.
It is true world oilseed stocks are tight, demand is increasing and canola in particular is desirable because of its healthy image.
However, its cost can’t be too out of step with competing oils.
