The strengthening of the Canadian dollar is going to be a negative factor in agricultural commodity prices this year.
And its impact will be felt more in Western Canada’s export-oriented farm sector than in Eastern Canada.
After falling below 65 cents (U.S.) in 1998, it bobbed between 66 and 68 cents for most of 1999.
Most of the big banks now forecast the dollar will rise above 71 cents in 2000.
They expect that the hot American economy will pump up inflationary pressure faster than the Canadian economy will. The slower pace of price increases here will boost Canadian competitiveness compared to the United States.
Read Also
USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
Also, Canada’s natural resource industries – oil, mining, and forestry – have enjoyed a remarkable turnaround since the world caught the Asian financial flu and the price of commodities collapsed.
Any shift in currency value cuts two ways. A strong currency makes the price of imported goods seem more reasonable, while a weak currency makes our exports appear more affordable.
The export-oriented parts of Canadian agriculture – grains, oilseeds, meats – generally benefit from a lower dollar.
The negatives are pointed out in the latest Canadian Pork Market Review by Kevin Grier of the George Morris Centre in Guelph, Ont.
For each penny the dollar appreciates, hog prices fall about $2 per 100 kilograms.
Given that the dollar rose almost two cents in January, that knocked $4 per ckg off the potential price of hogs.
During that time, hog prices did rise here because of tighter supply and strong competition among Canadian packers, but the price would have been higher if not for the higher-valued loonie.
For the coming crop year, the stronger loonie is not good news. Most grain analysts expect at best a small improvement in most grain prices.
If the loonie rises to 72 cents, or worse 74 cents as some analysts forecast, this could completely offset the improvement in grain markets.
The currency appreciation has little effect on the supply-managed sector, focused as it is on the domestic, mainly eastern Canadian market.
But it can shake export-oriented, mainly western Canadian agriculture. And there is little a farmer can do to protect himself against currency swings.
This is another argument why government safety net funding should be allocated on the basis of where it is needed most and not, as Ontario would have, based on relative size of the provincial farm economy.
Market
