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The Rural Voice, 2003-06, Page 10"Our experience assures lower cost water wells" 103 YEARS' EXPERIENCE Member of Canadian and Ontario Water Well Associations • Farm • Industrial • Suburban • Municipal Licensed by the Ministry of the Environment DAVIDSON WELL DRILLING LTD. WINGHAM Serving Ontario Since 1900 519-357-1960 WINGHAM 519-664-1424 WATERLOO CANADIAN CO-OPERATIVE WOOL GROWERS LIMITED " '.,.'!:.;;K'y' .i.a.;: Now Available WOOL ADVANCE PAYMENTS Skirted Fleeces Well -Packed Sacks For more information contact: 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