Lessons from Canada

I have just returned from participation in the fall meeting of the Ontario Association of Swine Veterinarians. A great group of swine professionals who are very worried about the future of the swine industry in Ontario. Challenges in Ontario include access to markets with the largest slaughter plant in the province up for sale.

 

With the plunging of the Canadian dollar relative to the US dollar in the past month, prospects for international trade are better than they were this summer for the Canadian industry. At the same time, the strengthening US dollar is making it harder for US pork products to compete in international markets.

 

I think many of us fail to realize how important currency exchange rates have been to our strong export sales. The best way to explain this is to use the current Canadian situation. In early summer, the Canadian Loony was valued as high a $1.08 per US dollar. Last Friday, it was down to $0.78 per US dollar.  Now assume that you are selling a Canadian product into the US market. In June, if you sold $100 worth of Canadian product to a US market, you received just over $0.92 US dollars in payment. On Friday, for the same $100 of Canadian product, you would receive $1.28 US dollars.  Quite a swing in income! On the other hand, if the US buyer had only $100 to spend, he could buy $1.08 worth of Canadian product in June and only $0.78 last week.

 

The Globe and Mail is the nationally distributed daily newspaper of Canada. On Saturday, the headline was ‘One Way to Boost Prices is to Cut Supply’. In the article, they were talking about copper, oil and other minerals that are a major source of value into the Canadian economy. At the same time, they were discussing the impact of the declining Loony on their overall economy.

 

Our industry is linked to the world economy. Right or wrong, the production decisions in the US must be made in light of such things as exchange rates, inventories in other countries, etc. The strengthening US dollar is making it more difficult to market our excess production via export markets. At the same time, other countries are valuing the US dollar relative to other currencies as being a safer place to invest monies. This means the US economy, even with our concerns about the cost to the economy from the Wall Street and financial bailout, appears to the rest of the world to be one of the best places to invest.

 

When the October 1 Hogs and Pigs inventory is released by Stats Canada later this week, we will have a somewhat clearer picture of the progress Canadian and US producers have made in ‘boosting prices by cutting supply’. In light of the export market challenges associated with the increased value of the US dollar, along with the financial market impacts on the US and world economy, I suspect we have a ways to go yet to make the supply and demand equation profitable for either Ontario or US producers..

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