C$ Par by year end?

[TOM4CWB]

CHarlie,

What will stop the Canadian $?

"Loonie at par by year's end?
Fri Jun 1 08:59:57 2007
News & Press Releases
By: TAVIA GRANT / The Globe and Mail
The Canadian dollar will hit parity by the end of this year, Canadian Imperial Bank of Commerce predicted Friday.

Talk of parity has percolated in the past month, but this is the first time a major bank has speculated it would arrive so soon.

The comment comes as the Canadian dollar hovers at a 30-year high, driven by rising commodity prices, takeover activity, strong economic growth and expectations of higher interest rates. On Friday, the currency traded at 93.72 cents (U.S.), its highest level since July, 1977.

“Between red-hot commodity and energy markets and huge capital inflows associated with an avalanche of M&A deals, the Canadian currency has plenty of octane left to take a concerted run toward parity against the greenback and hold it into at least the first quarter of 2008,” said Jeff Rubin, chief strategist and chief economist at CIBC World Markets.

Takeover talk heated up Friday with the Globe and Mail reporting that Stelco Inc. is up for sale, amid a flurry of foreign acquisitions of Canadian steel companies. Foreign takeovers tend to boost the loonie because they increase demand for dollars.

Hostile bids are growing, CIBC said, and that means greater premiums. The premium on hostile deals has averaged 35 per cent over the last year compared to just 21 per cent for friendly takeovers, it said.

Mr. Rubin's call comes after a report yesterday showed Canadian economic growth more than doubled in the first quarter, rising a better-than-expected 3.7 per cent. That growth, combined with a pickup in inflation, prompted the Bank of Canada this week to say interest rates may head higher as early as July.

“With the national jobless rate plumbing 30-year lows and core inflation now bobbing above the Bank of Canada's target range, our earlier assumption of the Bank of Canada intervening against a further rise in the Canadian dollar with rate cuts, no longer seems tenable,” Mr. Rubin said.

The currency has risen 9.4 per cent this year and 43.4 per cent over the past five years.

Prime Minister Stephen Harper said Thursday any attempt to intervene with the strong dollar to save manufacturing jobs would be a “huge mistake,” Bloomberg News reported.

“The rising Canadian dollar is a reflection of the underlying strength of the Canadian economy,” Mr. Harper told the news agency in an interview.

The comment comes as the lofty loonie has sparked concern among some industries that it will prompt plants closures and layoffs.

“Comments from Prime Minister Harper will support bullish Canadian dollar-sentiment,” said David Watt, senior currency strategist at RBC Capital Markets, in a note.

Article originally appeared: Friday, June 1, 2007"

http://nationalcitizens.ca/cgi-bin/news.cgi?rm=display&articleID=1180702797&search=&c ategory=3&order=&page=1

I more like wonder when it will be worth 1.10?

[charliep]

I will observe the trend up in the loonie versus the buck but will leave for others comments. More important to me is not information but the risk management strategy/decisions that come out of it. Is anyone looking at buying calls? What other strategies are you using?

[BennyHin]

Charlie:
In 2002, when the loonie was only worth 0.62 cents to the US greenback the canola farmgate price was $4.75 bu, oats were $1.55/bu, and wheat was under $3.00/bu.

Now that the loonie is $0.942 US, canola is close to $9.00/bu, wheat can be locked in at $4.75/bu, oats can be presold new crop at $2.75/bu. Why are the grain prices going up????

Also,in 2002, my NH3 input cost was 22 cents/lbs when our loonie was a measly 62 cents and US natural gas futures were under $10 for most of the winter.

Now our dollar is worth 94 cents, natural gas is trading under 9 bucks for most of this winter, but my cost has skyrocketed to $0.60/lbs?

As a qualified government agricultural market analyst, please tell me how I can hedge against a further appreciating dollar, to minimize my my input costs and maximize my commodity prices.

[kamichel]

Charlie will give a better strategy here but I will have to say that when prices are at the top 10 percent now like they are then a good strategy to maximize income from your crops would be to do some pricing. Leave the dollar hedging to the grain companies.

[TOM4CWB]

Benny,

AS almost every input we use to grow grain is priced in US $... as thhe CDN$ rises the price gets less expensive.

Our grain on the other hand becomes more expensive.

I certainly remember selling our farms grains at almost twice the price you quote in the thread above. Volume was way down because of the droughts Ca & Au both had.

[charliep]

BennyHin

Lots of other factors than currency in the changes in both agricultural commodity and input prices other than currency. Grain is suffering from years of consumption growing faster than production after throwing in a couple of crop problems and a new bio fuels industry. Concentrating on the US buck alone also ignores a lot of the appreciation of other currencies.

Short term your options options (if currency is a major risk factor in your business) is buying Canadian dollar calls or futures, using products the banks offer. As kamichel highlighted, there are also the tools grain companies/others offer in terms of forward contracts - example, locking in a CWB fixed price contract would lock the current exchange rate.

Medium and long term (more than a year), there is little a farmer can do on currency. In a SWOT analysis of your business, it would fit in the category of threat (a factor which will impact your busness negatively but over which you have no control). Then the question comes to what you can do to minimize its impact on your business in the next 5 years or turn it into something that is actually a benefit (eg. target markets that will not be impacted by changes in the value of the US buck or have currencies/other factors that are likely to increase spending/consumption).

Will note that everyone in this discussion area has survived a 50 appreciation in the value of the loonie relative to the US buck. It is also a factor in why US grain prices are so high (a higher valued US dollar relative to other world currencies would have current US futures prices lower than today). You likely can survive the next 10 % jump with other factors more important to your overall profitability (whether you got your crop seeded and the impact of weather over the summer).

[charliep]

Thought I would put up a site for Canadian versus other currency graphs. Interesting to see how we are doing not only relative to the US green back but also the euro/yen, etc.

http://www.bank-banque-canada.ca/en/graphs/currencies.html