Hay and grain?

[farmers_son]

You mentioned you work in a financial institution. I would expect you to be quite familiar with currency fluctuations and their impact on agriculture.

You made the comment “within your own country”. Maybe that is where the confusion lies. Our commodity prices are not determined with our own country, they are determined in the U.S. And yes those prices rise and fall within the U.S. however our returns are also adjusted for the changing dollar.

Debt and cash in the bank are not adjusted for currency fluctuations like the value of our production and other assets are. If you have a dollar debt when the CND dollar is par with the U.S. dollar you still have a dollar debt if the value of the currency fell overnight to $0.625 U.S. It is the same with your dollar in a savings account. It is still a dollar even though the buying power of that dollar has decreased. However it is now easier to pay down that preexisting debt with the $.62 dollar assuming you are paying down the debt with returns from production which should have risen by 153%, not that dollar in the bank. The cost of that debt has decreased due to the drop in the dollar.

Currency fluctuations do have an impact on day to day operations. Adjustments for the changing dollar do not affect production versus inputs perfectly. The value of our production is adjusted downward on a daily basis according to the value of the currency but the price of our inputs may be slower to adjust and some expenses will not adjust at all or very little. Fixed costs are called fixed for a reason. They tend not to change, especially change downward, because of a stronger dollar.

Exporters like cattle producers did benefit when the dollar falls and likewise loose that competitive advantage when the dollar strengthens. If you were to say one balances off the other that ignores the speed of the dollars climb and the impact such a rapid negative change has on producers. Also it ignores how the lower dollar got built into the balance sheet. Whether we are considering our balance sheets, cash flow or debt servicing the stronger dollar is going to hurt.

Re my debt servicing capacity. I was using my actual numbers which I am not going to put up here. A decrease in the value of the dollar from .95 cents to .65 cents has a direct positive impact on my debt servicing capacity to the tune of 146% assuming perfectly symmetrical changes in both returns and inputs. Over the same period my interest rate dropped by 42%, partly because of the currency rate. The remainder could be attributed to revenues rising faster than expenses.

[kpb]

Cattleman2 I have to say I am surprised that the effect of a rising Cdn. dollar on what the rancher receives is such a mystery to you, given that you work in a financial institution. It kind of makes a body wonder about the level of understanding in our bankers, etc.

Given that, the explanation is quite simple. If fats in the U.S. are selling at, say $1 U.S. a pound and our dollar is at .80 to the U.S., those same fats will be selling in Canada at about $1.25. Why?--Because it would take $1.25 or 125% of .80 to make up $1 U.S. Now this figure would have to be adjusted because of the historic basis mentioned in previous post but for the sake of comparison assume no basis.

Now if our dollar were to go to par--that is it is worth the same as the U.S.--we would receive just $1 Cdn. per pound for a fat if that fat was selling for $1. U.S.. That represents a 20% decline ($1.25 C to $1 C) in the price received in Canada for a fat, just because the dollar appreciated in value.

Farmers_Son and BFW are quite right in their posts on this matter--any rise in the CDN dollar will adversely affect any exporters, just as a decline benefits exporters because you receive more Canadian dollars, as the buck declines, for the product you export.

Our cattle are priced off the U.S. minus a regional basis discussed earlier and any thoughts about getting a Canadian-made premium or special price are complete pipe dreams. In reality, any part of North America that has a temporary premium is immediatly bought back into line with the U.S. price through arbitrage between the two places that creates an efficient market throughout the continent. I used to be a trader and I can tell you that inefficiencies in any commodity market are seen as very short-term (as in an hour or two) profit opportunities that are quickly levelled off as the market returns to balance.

kpb

[kpb]

Along with the impact of the dollar farmers_son what impact do you think the increase in the US herd will have on cattle prices in Canada ? I am not sure exactly what sector of the herd in the US is increasing, whether its in the feedlots or the cow herd.

[farmers_son]

As I see it, the U.S. has a very large domestic market for beef. A strong domestic economy will stimulate local demand for beef which could easily absorb the ability of the U.S. herd to expand. So U.S. demand for beef could be more influential to market prices than herd size. BSE is expected to impact the United States ability to regain export markets. The weaker U.S. dollar is expected to stimulate exports of grains which will tend to limit cattle expansion. You might be interested in this link to a speech by Keith Collins, Chief Economist with the USDA.

See: http://www.usda.gov/oce/forum/speeches/collins.pdf

I think the overall strength of the economy is an issue of concern. The U.S debt exceeds 70% of GDP and the growth of the U.S debt shows no sign of slowing. Rebuilding New Orleans is not going to help, neither is the war in Iraq. The economy is still very shaky after 9/11 which even in Canada is considered to be one of the major economic events in our country’s history.

[cowman]

I would expect the US cattle rancher is going to decline in the future. With the new Australian trade deal and soon beef coming in from South America, the price for manufacturing price is likely to go down?
I would suggest very soon there really won't be much of an American market for our cull cows and I doubt in the next few years we will ever see decent cow prices, in Canada or the US?
As we move more into this "global market" thing I believe we are going to see more and more price pressure for our cattle, hogs and crops. I see more of the same in the way of industry concentration and squeezing the primary producer?
Just about every industry in the world is feeling the change right now as the big players finish off the small independents, so why would we expect any different?
There are always opportunities in any situation? The times are achanging and you need to be able to adapt and change with them? Humans have a marvelous ability to find a way to make a go of it!
You may have to find your own little niche and you may have to do that several times in your lifetime...if you intend to survive on the land!
There are a million ways to make money in this country. If you get bogged down with the idea that cows are the only way then you'd better get your thinking cap on because you'll need to keep one step ahead of the pack!