The low dollar is supporting farmgate prices, but financial analysts disagree on where the loonie is headed
LONDON, Ont. — Canadian farmers are in the enviable position of being buffered, to some small extent, from the volatile world economic situation.
That’s the view of JP Gervais, chief economist with Farm Credit Canada, and international investment adviser Donald Coxe who spoke here at the Ontario Processing Vegetable Industry Conference Feb. 2 and 3.
“You happen to be in a field in which the commodities you produce are not subjected as much by these global influences,” Coxe said.
That said, Coxe was not painting a rosy picture. Oil prices have collapsed, and with them the value of the Canadian dollar and China is no longer able to prop up world economic fortunes with massive infrastructure spending, he said.
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“This is an extraordinary situation. It’s unique. Anyone making a prediction is only guessing.”
The best Gervais could say for Canada’s overall economic prospects is that 2016 is likely to be “sluggish.”
Coxe and Gervais said the low dollar is helping to support farmgate prices in Canada. They disagreed on the direction it’s headed.
Coxe wouldn’t commit but cited the recent 59 cents prediction, compared to U.S. currency, by the Mcquarie Group, a respected finance and investment adviser from Australia.
“We don’t know where the floor is.”
In contrast, Gervais suggested the dollar may strengthen, but to no more than 75 cents. Even if oil prices begin to recover, that’s likely the cap for 2016, he said.
Coxe and Gervais agreed that China is no longer the world economic driver it once was. Coxe said the country’s real economic growth may have fallen to as little as four percent.
It’s not necessarily all bad news, however. Coxe said the shift from China’s focus on commodities to consumerism was needed and Gervais said the disposable income of the average Chinese consumer has grown by about nine percent.
Canadian agriculture can benefit, Gervais added, especially when higher value food products are involved.
A wild card in the picture is India. Coxe said the subcontinent is hampered by the bureaucracy of its government, a leftover of socialist-influenced British rule.
“It’s hard to get things done there but India, in fact, is the best hope for the world.”
Coxe and Gervais said interest rates should remain relatively low although there is some indication modest increases are in the offing.
To Coxe, the cheap cost of borrowing money has its downsides. For people with money saved, there’s little in the way of income and highly leveraged companies are at risk if rates rise.
“There is a level of addiction here … (and) there’s a lot of companies that are not functioning all that well and will not be able to function at all if interest goes to two or three percent.”
Coxe is currently based in Chicago as chair of Coxe Advisors LLC. He has more than 40 years experience in institutional investment in Canada and the United States and once served as executive director of the Ontario Federation of Agriculture.
