Rising C$ hurts some, helps others
The good news is, U.S.-made products are cheaper to buy. The downside? Commodities sold in U.S. dollars bring in much less.
For an industry as export-oriented as Canadian agriculture, the rise of the Canadian dollar is a major headache.
With the dollar trading at 75˘ U.S. – 20% higher than a year ago – agricultural exporters selling U.S. dollar-denominated commodities are at a distinct disadvantage. So are Canadians trading in commodities in which the U.S. competes on the world market.
“Many agricultural commodities ultimately follow a world price set in U.S. dollars,” explains Brian Paddock, executive director of Agriculture & Agri-Food Canada’s Policy Analysis Division. “The rising dollar is a negative for wheat, for example, because the U.S. is a direct competitor.”
OTHERS FACE THE SAME, IF NOT WORSE
If the exchange rate is so important, shouldn’t Canadian pork exports be dropping? After all, pork trades in U.S. dollars on the world market.
Jacques Pomerleau, Executive Director of Canada Pork International, is quick to point out that Canada and the U.S. aren’t the only two trading nations in the world. Most free-floating currencies gained ground on the U.S. dollar in 2003, not just Canada’s.
“Canada is the number-one pork exporting country in the world, and I don’t expect that to change in 2004,” says Pomerleau. “Along with the U.S., our biggest competitor is Denmark, and the kroner appreciated a lot too.”
Of course, price isn’t the only factor influencing world markets. Right now, in Pomerleau’s view, the U.S. pork industry lacks sufficient supply to meet international demand. That leaves plenty of business for countries like Canada, albeit at reduced margins.
“So far, it’s having no impact on volume,” he says. “The packers are selling the same amount as before, they’re just getting 20% less in Canadian dollars.”
U.S.$ GUIDES CANADIAN CROP REVENUE
“For all exportable crops, the higher Canadian dollar hurts farmers’ incomes, and canola is no exception,” says Barb Isman, president of the Canola Council of Canada.
Strictly speaking, Canadian canola competes in the world canola market. In practice, however, canola’s market benchmark is soybeans, where buyers and sellers keep score in greenbacks.
Isman cites a hypothetical example of U.S. soybeans and Canadian canola, both selling for $5 U.S. per bushel. “A year ago, that $5 bushel of canola was worth $7.50 Canadian,” she says. “Now it’s only worth $6.50. The return to the farmer is significantly less, but again, that holds true for other crops, as well.”
20% OFF SALE, NOW ON
Of course, the rising C$ has a glass-half-full scenario, too. A higher C$ tends to hold Canadian interest rates down. More affordable U.S. dollar-denominated commodities spur global demand for commodities – also good news for an exporter like Canada.
Also on the bright side, a stronger Canadian dollar should make American-made machinery and inputs about 20% more affordable to Canadians. U.S.-developed technology (machinery, computer hardware and software, etc.) that will increase producer efficiency is going to be more affordable.
Producers who may be purchasing some of their inputs from south of the border or have some U.S. export revenue sources, may want to consider doing some of their finance in USD to hedge currency risk.
Brian Paddock’s advice? Crunch the numbers, and if it makes sense, go shopping. If your local supplier isn’t passing on the exchange gains, look south.
“The better access you have to go across the border, the better,” he says. “There are, for example, no barriers to importing fertilizer you buy in the United States. You could do that.”
At the same time, Paddock cautions against making any assumptions on the future direction of exchange rates.
“Even among people who do that for a living, there’s not much consensus,” he says. “Some see it going to 85 cents. Some see it slipping back. As we saw in 2003, when markets move, they tend to move quickly.”
|
