SASKATOON – Cross-border shoppers, tourists and importers may bemoan the cheap Canadian dollar, but no such complaints are being heard in prairie farm circles.
Since most Western Canadian farm commodities are sold abroad in direct competition with U.S. goods and are priced accordingly, a low dollar means more money in Canadian farmers’ pockets.
“There’s no doubt an exporter sees better times with a weaker currency,” said Jim Morris of SPI Marketing Group, Saskatchewan’s hog marketing agency.
Weak certainly describes the performance of the Canadian dollar in recent months. So far this year it has traded for an average of 74 cents in U.S. funds, dipping as low as 71 cents and hovering around 72 cents in recent weeks.
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For hog exporter Morris, a two-cent difference can be worth close to $5 (Cdn.)
For example, a 105-kilogram live hog is worth about $103.50 in U.S. funds. When the exchange rate is 74 cents that pig is worth $139.72 (Cdn.); with an exchange rate of 72 cents, it’s worth $144 to the Canadian producer.
And as the price of export sales increases, domestic prices tend to rise in order to remain competitive, Morris said.
Grain farmers benefit in a similar manner. The Canadian Wheat Board generally sets its export prices to compete with U.S. grain sold out of Gulf of Mexico ports. A declining dollar allows the board to bump up its price in Canadian currency and remain in the same competitive position with the Americans.
“When the Canadian dollar gets weaker in relation to the U.S. dollar, it means that we can ask more in Canadian dollars,” said board information officer Brian Stacey.
So far, a low dollar sounds like nothing but good news, but there are in fact some negative implications for farmers.
As has happened in recent weeks, the Bank of Canada will often respond to a declining dollar by raising interest rates to keep foreign investors from selling off their holdings. That hurts farmers in varying degrees, depending on how much debt they carry.
A low dollar also boosts the cost of goods imported from the U.S., including such things as farm machinery and chemicals. But farm economists say even with those additional input costs, the producer of export commodities still comes out ahead.
“All of the farmer’s gross income goes up by the whole drop in the exchange rate and only a portion of his expenses goes up at the same time,” said economist Richard Gray of the University of Saskatchewan.
Dairy, poultry left out
He added that farmers who produce primarily for the domestic market, like dairy farmers and poultry growers, don’t enjoy the same benefit. They face higher costs without the benefit of higher prices for their goods.
Alberta Agriculture livestock market analyst Ron Geitz said the fluctuating exchange rate makes it difficult to forecast livestock prices with any degree of certainty, adding that the province’s cattle, hog and lamb producers have all benefited from the dropping Canadian dollar.
He said the dollar is approaching the bottom end of its historical trading range against the U.S. dollar and the possibility of a strengthening exchange rate can’t be discounted.
Daryl Kraft of the University of Manitoba said if the U.S. economy continues to grow, increased sales of Canadian goods across the border should bid up the value of the Canadian dollar. He thinks the dollar is undervalued at its current level.
“Just as it was overvalued five years ago primarily because of the government’s monetary policy, now it’s probably abnormally depressed in the short term,” he said.
