Competitive Currencys, and grain prices?

[TOM4CWB]

Competitive Currency Advantages!

Exchange Rates – US Dollar Equivalent

Canadian Dollar: 1/3/00 .6918, now, 1/2/02 .6260 up in 2yrs 9.5%

Australian Dollar: 1/3/00 .6610, now, .5150 up in 2yrs 22.1%

British Pound: 1/3/00 1.6395, now, 1.4448 up in 2yrs 11.9%

European Euro: 1/3/00 1.0276, now, .9036 up in 2yrs 12.1%

Brazilian Real: 1/3/00 .5497, now, .4345 up in 2yrs 21.0%

Japanese Yen: 1/3/00 .009853, now, .007566 up in 2yrs 23.2%

Russian Ruble: 1/3/00 .03676, now, .03282 up in 2yrs 10.7%

US Dollar Index*: 1/3/00 1.0022, now, 1.1579 down in 2yrs 15.5%
*Trade weighted index

Western Canadian grain farmers are hard hit vs. Australian and Brazilian producers on international grain prices!

Since International grain prices are traded in US dollars, we must be aware of the value of the US Dollar!

If our prices of Canola, Wheat, and Barley were 13% higher, like they are in Australia, would we western Canadian grain farmers be better off?

Just think, hedging now for the fall of 2002, the South American/Aussie value;
8.00/bu Canola
$3.20/bu feed barley
$4.10/bu feed wheat

Not much has been made about US grain producers having a competitive disadvantage because weed killers, farm equipment and Capital overheads are lower in Canada, Australia, and South America, than in the USA.

I believe we have not looked at why grain prices have not increased in US Dollars, the reason is simple, the US dollar has increased in value instead!

Now what should our expectation be about US prices rising when they are becoming a smaller and smaller player in total world grain supplies?

Conclusion?
South American and Australian grain farmers are doing better than Canadian grain producers, just on Currency alone!

Where is the Canadian Dollar headed, and does this affect fall 2002 pricing now?

Real risk lies in currency values, more it appears if the US dollar continues stronger, US grain prices will have a difficult time in rallying significantly?

Now what strategy should be used to cover these risks?

[charliep]

On your comment on S. America, I don't think you can separate agriculture from the rest of the economy. I don't think I would want to like in Argentina with a 40 % decline in currency/standard of living. Assie is different but currency devaluation is a good indication of other problems in the economy.

Just another comment is that you are right to highlight that we need to look beyond the relationship between the loonie and the US buck. What is happening with other currencies (both competitors and customers) is a factor in our prices over the next year.

Your comments about actions. I would put impact of currency change in line with other variables. As an example, a penny move in the loonie relative to the US buck causes about a $5 to $6/t impact on canola (other things equal). Example - moving the loonie from 62 cents US to 63 cents will reduce the value of canola by about $6/t. Increasing the value of soybean oil by a penny (eg. 15 1/2 to 16 1/2 cents/lb) increases the value of canola by $14 to $15/t (other things equal).

Currency volatility is something businesses are going to face more and more. Thoughts.

[charliep]

The currency issue could end up being tougher on the US economy than anyone elses here shortly as their export go down because of cost. I think they are feeling it big time already.

[charliep]

kernel

I agree with your assessment. Money is floating to the US because it is viewed as the "safe haven" in a world of uncertainty. They are not dealing with some of the other major problems in their economy/society. Perhaps the terrorist action (or war if you like) will be enough stimulus to pull them out. We are headed into interesting times generally, not just in agriculture.

[charliep]

The USA has created themselves a huge problem because they can't compete in the export market. That is why we see more and more of US corportations buying production plants in Canada because they can produce cheaper here than at home. Welcome to Mexico of the North.

I done think of our dollar being to low as much as thinking their dollar is to high. As a country I think we are better off having a lower dollar. It helps to create more economic benefits and employment here.

Its got to be good for the agriculture industry.

[TOM4CWB]

kernal***

It appears to me that the G8 nations are riding out this 'recession' (depression) by lowering interest rates.

If Canada were to be paying 8% interest on our national debt instead of 2.5% we would be like Argentina!

Air Canada is technically bankrupt with losses announced at over $10/share when the shares are only worth $5.00!

Will it soon be that it costs money to have savings in the bank?

How will this deflation affect grain prices?

Does anyone really believe wheat prices will rise for any other reason than from a depreciating CDN$?

[parsley]

Kernel
,
You say, "As a country I think we are better off having a lower dollar."

One thing that isn't very good for farmers is buying a new tractor or combine from the USA with those low $0.50 Canadian dollars. Would you agree?

Parsley

[TOM4CWB]

Parsley,

If the CDN$ went to .75, what would be the impact on your farm!

1. a 20% decrease in net farm income.

2. farm implement costs that might decrease by 10%. How much new equipment does western Canada need, isn't there an abundance of used equipment now?

3. depreciation of land values by 20%, what effect would this have on your bottom line?

[parsley]

When the Canadian Dollar becomes worth $0.10 on the world market, do you think that would that would mean farmers would be in the chips?

Parsley

[charliep]

A solution might be a North American currency (another way of saying just use the US dollar). Thoughts?

Maybe Canadian farmers will be doing all their business in US dollars with the only time you convert to Canadian being when you take money out for family living?

An interesting question I have asked myself is what I would advice an Argentina farmer to do these days - a commodity in the bin valued in US dollars (desire to hold to maintain value based on you don't want to have any money tied up in the Peso) versus pressure to pay bills and the need to have money to put in next years crop. How cooperative will banks be in lending in this environment. Thoughts.

[TOM4CWB]

Parsley,

I understand the folks in Argentina are sort of there!

A government that is disfunctional, a place where noone wants to invest new money, but life sort of goes on!

Question, money is a tool used to facilitate trade, why should anyone be given the right to extort this tool, (interest), just for providing the tool?

I question the sustainability of the whole system, when I borrow money to produce something productive,no funds are created to pay the interest that I will owe while paying back these funds!

Now one of three things must happen:

1. Deflation, the money comes from someone else to their loss.

2. Loans, the money is created and spent, allowing my loan to be repaid with interest if I am given some of these funds while trading some of my product I helped produce.

3. Currency devaluation, creates the money by devalueing everyone elses assets within that monetary system.

I understand Japan has had 0% effective interest rates for some months now!

A system that pays Interest on money, ...

...is not a sustainable system,...

...but noone wants to own up to this fact!

So where does this put us Parsley?

It hurts peoples brains just to think about this fact, so everyone avoids it, and calls anyone bold enough to talk about it, ... a fool...

What is the answer?
We need another system to alocate credit than the banking system using interest!

Interest will transfer the assets into the hands of those responsible for loaning the funds, at some point in the future they will own everything by doing nothing productive, but creating the currency that was the rightful property of the people to begin with!

When will society understand that our monetary system as it operates today is neither sustainable, equitable, or productive?

[charliep]

Tom4cwb

Isn't money an asset just like everything else - land, equipment, labor, inputs? Shouldn't people who provide that asset be paid?

Are you suggesting the only access to money/farm capital be via equity financing? What about people who want a secure funds (eg. retired people who rely on their investment for living)?

Just a comment that I like everyone else in this thread is enjoying the benefits of low interest. It makes it interesting though when you are advicing a parent (someone over 65) in their investments. It takes a lot of money to generate guaranteed living expenses at current 2 % to maybe 3 % with shopping and 4% if you are willing to commit for a longer period.

An interesting sideline as we think about our non farm investment strategy. Where does a person put money if you don't have a high risk tolerance?

[TOM4CWB]

charlie,

some may want you to believe that money is an asset like everything else, but is it really?

If I own land, or business, or products that produce a productive capacity, then it is actually worth something.

But a ledger line in a savings account really means nothing to anyone.

Since the Canadian Banking system needs really no gold or deposits to issue credit, money is a fluid that makes the system work, as long as there is confidence in this system!

I am just encouraging people to do productive things for their community with their assets, instead of trusting them with bankers or baystreet.

Money can't make anyone happy, only people are happy when they choose to love their neighbour and make this world a better place!

On the currency side, wouldn't you agree there is a problem?

On the competitive side I see because of this issue Edmonton is the best place in the developed world to do business!

Life is a state of mind, cold winters aside...

[ianben]

Isn't money a commodity just like grain etc.
The same speculators are out there taking the risk, supposedly finding the market value of each currency.
Is there any difference?
Can one be good for farmers and the other not?
Some differences I note. The ordinary guy is not encouraged to hedge or buy futures with his income. A bank does that for him with the hope of providing stability and maintaining confidence.
With grain we should all train to be master marketers and join in.
Is this good for stability and confidence in grain marketing?
The value of currency and grain have a big effect on our bottom line can we really manage the risk individually?

[ianben]

Money is a commodity and if you are trading in the commodities market for ex. Hedging beef cattle you should also hedge the feed (barley or corn) plus hedge the dollar in, to be turely protected from all that can go wrong in your little world. Now on a grain hedge you should be doing the same type of thing but in order for the normal farmer to do this properly you would need a broker,an accounted, a lawyer, a good banker. The possiblity of most farmers doing this is very remote.

I might added that if farmers have to hedge into the future to make their business work they had better find something else to do that does not require this much credit risk.

As often as you would make money on the commodities market you would also lose as often or more often. Just the same as in real life. So why complicate it with hedges options and whatever. Use a pricing order and you get to name the price. If your reasonable with the open market you will obtain your price 8 times out of ten and be in the top 1/3 of the pricing in that year. It makes money for YOU not brokers and bankers.

Don't think about our currency and its value we don't have to buy much from the US and if you look carefully you will find that we will pay a lower price than an American will for an American product.

The sky is not falling and if it did it was caused by mother nature and we have no control on it even if it is a human made disaster. Humans are part of mother nature and control is very flitting.