The Rural Voice, 2003-06, Page 10"Our experience
assures lower cost
water wells"
103 YEARS' EXPERIENCE
Member of Canadian
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• Farm
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Licensed
by the Ministry
of the Environment
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WELL DRILLING LTD.
WINGHAM
Serving Ontario Since 1900
519-357-1960 WINGHAM
519-664-1424 WATERLOO
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Skirted Fleeces
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WINGHAM
WOOL DEPOT
John Farrell
R.R. 2, Wingham, Ontario
Phone/Fax 519-357-1058
6 THE RURAL VOICE
Robert Mercer
Be prepared for a stronger loonie
Robert
Mercer was
editor of the
Broadwater
Market Letter
and
commentator
for 25 years.
Prices in the farm commodity
markets reflect not only supply and
demand fundamentals, but also the
state of the financial markets as
represented by interest rates and
currency values. These too, can
become serious cost and pricing
factors.
This past month has seen one of
the fastest ever changes in the value
of the Canadian dollar. It was up
11.7 per cent compared to the U.S.
from the start of the year to early
May.
This rising dollar cuts the costs of
imports, such as food items for
consumers, and machinery and
equipment costs for manufacturers
and farmers. On the other hand the
stronger loonie is negative for farm
commodity prices that are based on
U.S. dollar markets such as corn,
beans, canola, cattle and hogs.
In the west, the effect of the dollar
is easily related to the price of canola
on the Winnipeg Commodity
Exchange. When the Canadian dollar
dropped from 70 cents to 62 cents the
value of canola in Canadian dollars
went from $5/bu. to $5.50.bu. — a 10
per cent gain. Now the situation is
reversed and the U.S. dollar has
fallen 20 per cent from its July 2001
high.
So, is it wise to expect, and plan
for, a continued rise in the loonie
over the next couple of years? At the
moment it looks like a good bet.
Although there is good evidence
that the currency market will soon
take time to consolidate the recent
gains, longer term it is likely that the
U.S. dollar will weaken compared to
other currencies.
My take on this currency value
change is basically two -fold. One. the
U.S. has got itself into a debt problem
that it is finding hard to finance with
the low interest rates. These rates
have emerged due to slack consumer
demand, and massive and continuing
balance of payment problems of
excessive imports over exports.
On the other hand Canada's
economic performance has been
better than the U.S. due to a good job
market (until the SARS scare), our
national current account surpluses are
healthy, taxes have been lowered and
we have a strong energy sector due to
higher oil prices. In fact, 1 suspect
that, at last, the world is noticing that
Canada is now one of a number of
better places to park money than the
U.S.
This currency value change is not
all in relation to Canada, but is
reflected in most other trading
nations. It is especially true of the
Euro which is now emerging as a
strong alternative for holding central
bank reserves. The Euro is up 36 per
cent against the U.S. dollar over the
past two years.
The U.S. dollar devaluation
against the Canadian loonie is also
related to Canada's interest rates
which are 210 basis points above the
U.S. rates. This spread could be
increased by a possible additional 50
points by the end of the year as
Canada ups its central bank rate to
ease inflation fears (3 - 4 per cent).
Below the border, the U.S. might
well cut their U.S. Federal Fund rate
even lower (at a current 1.25 per
cent) because of the faltering U.S.
economy.
What one is left with, I suggest, is
the uncomfortable feeling that the
U.S. is deliberately and quietly
allowing their dollar to depreciate.
Providing that there is no
stampede to a massive realignment of
foreign currencies, the various
forecasts of our dollar reaching 71.5
cents, 73 cents or the Royal Bank of
Canada's estimate of 75.2 cents by
the end of 2004, appear to be within
the range of prudent future planning.0