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.