Informa Economics says the value of the Canadian dollar will be a key factor influencing the profitability of Canadian pork producers in the coming months.
Herd liquidation throughout North America and around the world has strengthened live hog prices and feed costs have fallen improving profitability but the strong Canadian dollar has hurt Canadian producers.
Informa Economics vice-president Dave Reimann says, while a strong dollar reduces feed costs, it also reduces the competitiveness of Canadian pork on the export market.
I think that, if the Canadian dollar stabilizes around par value which is sort of my expectation I think give or take a few cents on either side, if we do that for a few months my feeling always is that the industry adjusts and there’s not a whole lot of shock value.
Producers and consumers get used to the value and they tend to start operating.
Where I always get afraid of currencies is when they move up extremely quickly.
When you start to see as we have in the past a four, five, six, seven cent gain in matter of weeks or months that really throws sticker shock into the equation and you often see buyers just completely freeze up and it can have a pretty negative impact on the market.
But if we just sort of get that market sideways or very gradually rise you don’t see quite the pain.
Even just recently taking the dollar from sort of the 96 to 97 cent area up to 98 and 99 we didn’t really see a major impact on the market because it was relatively slow in coming and now the market is hovering again.
I was a little afraid at one point that we might just see it surge back up to 1.05 or something in a hurry from 95 and those are a little scary.
Reimann says there is potential for the Canadian dollar to rise above par longer term, possibly in the 1.01 to 1.02 U.S. range, which will have a slightly negative impact on the Canadian hog industry but if it happens gradually it shouldn’t be that painful.
Source: Farmscape.Ca
