CDN $ vs ocean freight.

[terralex]

Just wondering if anyone has done the math to figure out the following situation.

As our dollar drops, we should receive more money for our crops. At the same time, ocean freight is priced out in US$ and will cost more.

Is there some sort of ratio that could be shared?

[charliep]

The answer/ratio will depend on the crop/value.

To keep things simple lets assume the US dollar and the loonie have the same value (par). The value of the dollar declines such that it takes $1.01 loonies to equal a US buck.

Assume world wheat is US $300/tonne. A par loonie versus a $1.01 one increases the value of wheat by Cdn $3/tonne. Assuming a world freight rate of US$50/tonne. Based on the currency exchange above, the cost of ocean freight would have increased by Canadian 50 cents per tonne. The gain is $3/tonne versus a increased ocean freight of 50 cents/tonne.

A US $200/tonne crop would increase in value by $2/tonne. A $400/tonne crop would increase by $4/tonne. Assuming the same US $50/tonne ocean freight, the ratio changes depending on the crops value.

Don't know if this makes sense but would be how I would approach. I have also assumed away a lot of other factors.

[carebear300]

As per usual Charlie, clear as mud. lol Thank you

[charliep]

Strangely enough, this question lines up with two others I got today relating to the CWB press releases. Will note that I think this years smaller and at this point unknown quality wheat crop will have as much impact on prices as either exchange rate or ocean freight. My numbers show a likely 13.5 MMT Canadian wheat program (10 MMT wheat durum and 3.5 MMT durum). That is down from 18.5 MMT in the current crop year. A larger percentage will go south/never go near an ocean. Domestic milling industry will take a higher percentage. Take home message is something like freight does has some impact on your bottom line but is miniscule relative to other marketing factors. Covering increased CWB fixed costs/tonne over less volume will have more impact on your price/payments.

[charliep]

13.5 MMT relates to 2007/08 exports (10 MMT wheat ex durum and 3.5 MMT durum). Sorry about that.

[btjadenlepp]

Charlie - just in the process of updating my own s/d's. non-durum wheat is a very small crop indeed.

does your number include eastern and winter wheat?

[terralex]

Thanks for the help with this. Your answer made perfect sense.

[charliep]

Yes.

My number (not published) is about 21 MMT of all Canadian wheat production (could come down depending on fall) versus 25.3 MMT last year. Exports 13.5 MMT versus 18.5 in 2006/07. Domestic 9.5 MMT (3 MMT domestic millers, 4.8 MMT Domestic livestock, 1 MMT seed, .7 MMT ethanol. Disappearance 23 MMT. Carryovers down 2 MMT on July 31, 2008 to a very historically tight 4 to 5 MMT.

Sorry for taking off the ocean freight topic. Where you referring to the article on page 3 of this week's western producer (new barley pro released)?

[terralex]

I was just wondering about how great the impact of our dollar was on the freight rate.

As far as the producer article, I did not read it. The producer only seems good for open letters about keeping the CWB and classified ads.

Most of my marketing info I find elsewhere.