On Wednesday morning there seems to be little to be excited or depressed about in the main commodity markets. Prices first fell and then recovered a bit. These crazy days, who knows where the market’s going to be at the end of the day.Â
It would probably shock and disgust Canadian farmers to hear someone say that they’ve been sort of lucky in the recent commodity price slide.
So I’m not going to say it out loud.
But recently they’ve been lucky enough to have a big, fat cushion to fall onto, as commodity markets have plunged. That cushion is the Canadian dollar, which has plummeted in the past couple of weeks to the 80 to 90 cents range. With crop prices recently tumbling, there are probably few farmers planning trips to Disneyland this winter, but there are many, many farmers who still need to price their crops, and livestock producers who need to price-in upcoming sales. The recent crop price tumble has been an appalling nightmare, with farmers still having to pay high prices for fall fertilizer but getting much less for their crops than they had expected and need. So they’re in a squeeze. But the situation would be a lot worse if Canadian farmers were using the U.S. dollar.Â
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Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
Commodity prices are generally set in the world market in U.S. prices, so when the Canadian dollar slides, Canadian crop prices generally hold up better than U.S. prices. This cushion may not seem to be working too well, because when you falling off of a roof you need more than a pillow to break the fall, but it does offer a small amount of relief. Just imagine what prices Canadian crops would be getting if we were still at $1.10, or even just at parity.
And right now some livestock feeders and exporters are locking in the dollar exchange rate in the expectation that the Canadian dollar will rebound sometime, or just to ensure that they’re protected in case it does. An Alberta advisor recently told me the entire profit margin of some feedlots is based on the exchange rate, so those operators are aggressively locking in the low Canadian dollar for their future exports.
With some analysts expecting a slide in the U.S. dollar some time this winter, as the country attempts to borrow money to pay for all of its mega bailouts, currency concerns might become a pretty big matter for prairie farmers to grapple with.
