The Canadian dollar’s flirtations with the 80 U.S. cent mark is not likely to undermine agriculture’s potential for the rest of the year, said the principal agricultural economist at Farm Credit Canada.
When FCC issued economic outlooks for agriculture back in January, it said the low dollar relative to the U.S. currency had been a major reason for Canadian ag sector profitability for the past couple of years. The report predicted the dollar would stay near 75 U.S. cents.
But it’s now reached that and beyond.
Yet those recent gains shouldn’t cut too deep, said Craig Klemmer at FCC. While it will likely cause some softening of demand, the overall outlook remains positive.
“So when we think about our crop receipts, for example, the U.S. is going to be slightly more competitive than it was before, but in international markets, the Canadian dollar is still quite favourable,” he said.
“In terms of that, it will continue to support relatively strong cash receipts.”
Klemmer pointed out that most Canadian dollar gains are due more to U.S. weaknesses, rather than a stronger loonie.
He said a stronger Canadian dollar relative to the U.S. will make Canadian goods less competitive in the U.S. market and in international markets where the U.S. and Canada compete head to head. Demand from those markets could soften, he said.
“But that being said, we’re still an 80-cent dollar. We’re still very, very competitive.”
He said supply-demand fundamentals remain intact with the Canadian and global economies both performing well, which should mean steady demand internationally and at home. And while there are some weather challenges and regional issues to overcome, he said the overall picture remains positive.
Another key factor will be whether the Bank of Canada or the U.S. Federal Reserve increase key lending rates.
Klemmer expects both institutions will hold off on hikes, at least for the time being. The Bank of Canada’s key lending rate is at 0.75 per cent.
There’s also a bit of good news for farmers in that input prices, most of which are priced in U.S. dollars, should become less expensive for Canadian farmers as the dollar strengthens.
“I think it still looks like a very successful year for Canadian agriculture,” he said.