Canadian Loonie On the Rise Challenging Our Marketing Acumen
It is that time again. I find myself driving a no till drill through the field hoping soybeans only have to be planted once. In Canada we have put the Victoria Day weekend just behind us. So that must mean the American Memorial Day weekend and everything it represents in the markets is just before us. I’m trusting all of you have a little bit of energy left to think about our marketing as we head into these big American holidays.
Many of you might have read my latest “Market Trends” commentary for the Ontario Corn Producers Association. Corn markets have not been as volatile as soybean markets but clearly in Ontario are marketing horizon has changed. Is one thing to watch futures prices go up and down every day but it is another thing to see our Canadian loonie find its testosterone again. While we were planning our crop in late winter and early spring and now that we are actually planting it the loonie has gained over at dime in value against the American dollar.
As every Canadian farmer knows sniffing out the value of the Canadian dollar is a daily occurrence on the farm. Let me remind you that it was only a short 18 months ago that the loonie hit $1.10 US then it seemed the whole world economy went into free fall and we backed down to $.77 in early March only to find ourselves at 87.61 US today. So the foreign exchange gods giveth and they taketh away. It’s lots of fun when we are gaining but not so much when the Canadian loonie is moving up.
It makes for some interesting grain movement across the Canadian border. For example in Ontario I have always told you that US replacement price for corn is a benchmark we all work with. Import pricing for corn in Ontario means US corn must be brought in to replace corn which end users cannot get out of Ontario bins. Typically this happens in late summer but for many parts of Ontario right now especially Eastern Ontario we are at import price levels. However it is a mixed bag because there seems to be still lots of corn in the bin in some parts of Ontario but farmers are keeping a tight rein on it.
Needless to say, the increased value in the Canadian dollar is putting a dent into Canadian cash grain prices. However our futures prices have been buoyant, helped by an American dollar, which has been losing value. To some extent the increasing value of the loony has been mitigated on our Canadian grain prices. It’s been especially true for Ontario corn or the last few weeks but I’m sure it will be showing up in the other grains over the next month or two.
The question is why is the loonie going up and is there any hope to keep it at a value where Canadian farmers can live with it? I don’t think anybody wants to see $4 dollar futures prices on corn with the Canadian dollar at par with the US. Ditto for all other Canadian grains and livestock.
Many Canadian watchers of the loonie often talk about its strong correlation with oil prices. I have a bit of a problem with that, but at the end of the day it’s pretty hard to argue with it. For instance the price of oil finished up at $61/barrel, which is almost double of where it was at Christmas time. That’s a long ways away from $147 a barrel from last summer but it’s been enough along with weakness in the US greenback to send the loonie higher.
It is all happening in an economic environment where we have the lowest interest rates since the Bank of Canada started measuring them. This combined with the recession in the nonfarm economy makes for a strange mix for the loonie. I used to spend quite a bit of time talking about unemployment, interest rates and other related economic factors in relating the loonies value. So with interest rates so low much of that has been thrown out the window in an attempt by government to get consumer spending again. It almost begs the question what happens when interest rates start going up again because that’s usually very good for the value of the Canadian loonie.
The specter of that moving forward for Canadian agriculture is not good. I was still getting used to the meteoric fall of the loonie from par values so this latest jump up to $.87 has been hard for me. Where will it go next? Of course my standard answer is nobody knows. However much will depend on the value of the US greenback and of course the price of oil.
The challenge looking ahead for Canadian farmers as our crops start to emerge is to keep our eye on both futures and basis. Yes futures have certainly been buoyant over the last few weeks, but basis has been hammered by that Canadian loonie. What we need is a good marketing balance. If the events of the last few weeks are any indication of what is to come it surely won’t be for the fainthearted.