Impact of the Loonie/Ocean Freight Rates on Prices

[charliep]

Just doing some head scratching (maybe wondering why I am going bald) about outlook for the next year.

Two areas are having significant impacts on the prices - currency and ocean freight rates.

Currency - Most agricultural products that are traded use US dollars. It keeps life simple in that there is only one price - a US dollar one. The US is the major currency (at least to this point) so it is used as a reference. There are effective risk management tools to manage the actual currencies for both buyers and sellers in their domestic currencies.

The reason for the long explanation is a commodity that is worth US $100/tonne two years ago would convert to Cdn $155 to $160/tonne while today that same conversion would be between Cdn $120 and $125/tonne. A significant impact on our prices (at least for what we sell in the export market).

Ocean freight rates over the same (S.E. Asia) have gone from US $15 to 20/tonne to current levels of Us $45 to $55/tonne.

Don't know where I am going with this other than to note it. Maybe to a certain extent supporting Vader's thoughts about developing more innovative domestic markets that are less subject to these outside forces.

[WoolyBear]

They say that with everything thats going on this year.....BSE, low grain prices because of either quality or quantity, high energy/input costs, etc, that the only thing missing from really messing up the WHOLE agriculture system in Canada would be higher interest rates.

Everyone else can pass on their higher costs, but for farmers/ranchers, their buyers will just look to other suppliers.

[Vader]

Charlie,

I saw a CWB presentation that showed that Canada is charging China 50.00 per tonne more for malt barley than it was a year ago and the farmer at the same time is getting 25.00 less. A testament to the effect of the change in the dollar and ocean freight.

You mentioned that grain around the world is priced in US dollars. How long will this make sense when the US economy is tanking the way it is. The US dollar is weakening against the CDN$ and the Euro. You were at Grain World in Winnipeg and heard the European speaker on her rant about the impact of the falling US dollar on European exports. They are not happy either.

Perhaps we should start basing the grain trade on the Euro. Is that a more stable currency?

When will China quit pegging their currency against the US$. I know it keeps their exports to the US competitive.

Part of the "strategy" of a falling US dollar is to improve the US balance of trade but it isn't working!

The US is in big trouble and that is bound to rub off on its nearest trading partner. Canada is going to continue to be impacted by the fallout of the failing US economy.

[Incognito]

Vader:

You are the CWB presentation...geez.

[JD4ME]

I continue to wonder why we use "handles" on here,haha
Plausible deniability I believe.
Luckily even if you did use my real name everyone would say "who?"

[TOM4CWB]

Vader;

Take a look at German and French Budgets... almost as bad as the US for deficits.

Low growth in the EU... worse than the US.

The FSU has all the major growth... and the G-10... except for Canada is not in good shape.

As the US$ depreciates... the US become more competitive... Exports will change.

Canada is competitive to about $.85 then major contraction will get us in our economy as we get to $.90... we have not spent on Capital to become more competitive... the higher the CDN$... the more trouble we are in.

If we were smart... we would lock on to the US$... set it... and do what China has done. A set exchange rate.

The US is simply doing now what we did over the last 10 years... now we get the pay back for depreciating the CDN$!

The productivity of the Western EU is is awful shape... as their Euro appreciates! They could soon be in worse shape than the US... if they don't cut spending.

Interesting that the US$ is not as low now as it was in the early 80's... if you look at long term charts!

We will switch to more containers... as container shipping to and from China/S. Asia becomes the shipping system of choice. Insurance has taken many bulkers out of service... we will have to change how we move ocean freight to adjust as the new capacity being built is largely Container ships!

[Vader]

Tom,

Right now I believe that container freight across the Pacific is lower than bulk. CWB malt barley is going by container to China.

What does it cost to get a container out to your farm and then back to Vancouver? Is there demurrage on the container? I understand that the demand for container traffic westbound causes some container owners to demand that their containers be sent back empty for the next load.

[charliep]

Just as a note of interest, my head scratching involved pulse outlook. These issues are affecting all crops.

[TOM4CWB]

Charlie;

On the pulse outlook, dry weather in the Western EU if it continues... could boost pulse prices.

Interesting that eastern SK. hog farms are now being quoted as paying $3.90/bu for feed peas.

Truck freight is going to be a real problem this spring in western Canada.

A wet late spring in the FSU could reduce corn plantings significantly... they have increased 30-40% over the past few years. With Brazil just down 3mmt of corn over last year... feed grains could be more volitile than many thought possible.

Urea from eastern EU/FSU is being shipped to North America... some say this will short the FSU on fertiliser...

50bil will buy the whole US crop... and funds have access to 1.5trillion!

Volitility with this type of money around will make things very interesting!

[parsley]

Some folks are interested in downloading demurage on farmers.

Why isn't the CWB price of grain priced fob farm?

Parsley