The sudden slump of the loonie is helping turn what once looked like a break-even year into something that could push farmers back into the black.
The outlook for most farmers is much better than many expected last summer, even with livestock prices falling hard following recent records and crop prices well beneath levels of pre-2014 years.
“It could be a really decent year,” said a pleasantly surprised J.P. Gervais, chief economist for Farm Credit Canada, who in the fall had expected a near-break-even 2015 for western Canadian farmers.
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“Overall, I think it’s really positive.”
Many farmers agreed that the loonie’s fall to about the 80 cent level compared to the U.S. dollar bodes well for inciting demand and bucking up prices.
“It’s helping out because it’s making it cheaper for people in the U.S.,” said Art Enns, a Morris, Man., farmer and president of the Prairie Oat Growers Association.
The dollar’s slide, according to virtually all currency experts, is all about the collapse of oil prices.
Since August, West Texas Intermediate crude oil futures have slumped from more than $105 per barrel to $45.
Fortunately for farmers, a weaker dollar tends to mean higher prices for crops and livestock because they are priced in U.S. dollars and Americans are some of the biggest buyers of western Canadian agricultural goods.
However, the impact is not simple, as can be seen in cattle.
It’s almost all good for cow-calf producers, who are at the start of the meat chain.
“Outside our country, they can now buy our products for less money,” said Saskatchewan Stock Growers president Doug Gillespie of Neville.
“A declining loonie helps us. It helps put up the cattle prices.”
However, it’s a mixed bag for Canadian cattle feeders.
Larry Schweitzer, who operates a feedlot near Hamiota, Man., said Canadian feeders will probably have to bid higher for local calves to keep them out of American hands, but will probably be able to sell finished cattle for higher, U.S.-based prices.
Changes in the loonie’s value are quickly reflected in futures prices for many grains.
P.I. Financial broker Ken Ball described canola futures now as a “currency story” rather than a reflection of changes or strength in canola’s value on world markets, with steady canola prices masking a decline in soybean oil prices.
The present relative strength is the good side of the story for canola growers, Ball said, but “it could get ugly” if the loonie bounces off of the 80-cent mark.
If the loonie stays low, better prices and stronger demand for most crops might take some time for farmers to notice. Often futures market changes are only gradually incorporated into elevator bids, with cash prices moving far less aggressively. Basis levels often move to mitigate changes in crop or currency futures markets.
Lower energy prices, even with a lower dollar, tend to mean lower fertilizer prices, something that would make most farmers happy. However, any farm machinery manufactured in the U.S. is likely to come with a higher price tag, which could further dampen farmer zeal for new iron.
Gervais said the cut in the Bank of Canada’s overnight interest rate provoked the sudden slide in the loonie, but farmers might not see any interest difference with their variable rate borrowings unless the bank keeps cutting.
The big banks haven’t cut their prime rates yet, and they might not because the present world economic environment is getting more dangerous.
“There’s more risk right now,” said Gervais.
However, he said three-to-five-year mortgage rates should improve because the likelihood of interest rate increases now seems more than a year away.
