3 ways a low loonie impacts Canadian agriculture

It probably doesn’t come as a surprise when I say the Canadian dollar is on a downward trend. In the last five months, it has lost almost 10% against the U.S. dollar, trading around US/CAD $0.70.  Falling crude oil prices (down 30% over the last five months, and trading around USD $30) and the U.S. Federal Reserve's recent key interest rate increase suggest this trend will continue.

How does this weakened loonie impact Canadian agriculture?

Here are three answers for your consideration:

1. A lower loonie supports farm-gate prices

Over the past year, Canadian crop and livestock prices have mainly been driven by the dollar. We compared market trend prices for the week of January 20, 2016, to the same period in 2015. Here’s what we saw:

  • Saskatchewan wheat (1 CWRS) and canola prices are 18% and 7.8% higher. Conversely, Minneapolis rail bids for wheat (1 DNS) and soybeans are 16.8% and 11.3% lower.
  • Alberta fed steer prices are down 7.2% while the Nebraska price is down over 20%.

The take away from this data is the low Canadian dollar is supporting commodity prices.

2. The declining dollar increases most farm inputs

The loonie also impacts farm inputs which often increase in price when the dollar declines. Global fertilizer prices have weakened along with other commodities. However, the weak loonie has kept domestic fertilizer prices flat since autumn 2015, compensating for the overall decline in the price of fertilizer denominated in U.S. dollars. However, there are reasons to believe domestic fertilizer prices could creep higher by spring despite trending lower in the U.S.

3. Low Canadian currency values raise farm equipment costs

In contrast to flat fertilizer prices is the inflated cost of farm machinery. According to data from Alberta Agriculture and Forestry the cost of a new combine has increased 18% in the last year with most of that (16% ) occurring since August 2015. When compared against the value of the Canadian dollar, most of this price increase can be attributed to the loonie’s declining value (as shown in the graph below).

The exchange rate impacts both the price you receive for your production, as well as the inputs you purchase. Understanding their overall impact on your bottom line is important.