Farmscape for September 8, 2017
The Director of Risk Management with h@ms Marketing Services says the Bank of Canada's latest interest rate hike will increase financing costs for hog producers while lowering returns by stimulating an increase in the value of the Canadian dollar.
On Wednesday the Bank of Canada raised its benchmark interest rate by one quarter percent to one percent, the second rate increase in less than two months.
Tyler Fulton, the Director of Risk Management with h@ms Marketing Services, says increased interest rates negatively effect Canadian hog producers in two ways.
Clip-Tyler Fulton-h@ms Marketing Services:
It appears that North America is kind of snapping out of its low growth economy and so climbing interest rates are kind of a typical reaction to that.
So the two fold impact is A, just in the cost of running a hog operation in Canada, when interest rates go up.
They're still a heavily capital intensive industry and so typically there's a lot of financing that still connects to the outfits.
One aspect of Canadian operations is that they typically tend to be a little bit older, probably a little better capitalized and so arguably maybe not as negatively impacted as some other industries that have seen more growth recently.
The second thing and probably the most tangible effect that that interest rate increase has is on the currency, the value of the Canadian dollar.
It immediately shot the Canadian dollar up more that a cent relative to the U.S. dollar which is important because of the relationship on how hog prices in Canada are set relative to the U.S.
Fulton says this latest interest rate hike comes at a point during the seasonal cycle when hog prices are typically lower so the timing is not ideal.
However, he says, we're still looking at profitable prices but, as prices decline, we could be heading into a period of negative margins for some operations.
For Farmscape.Ca, I'm Bruce Cochrane.
*Farmscape is a presentation of Sask Pork and Manitoba Pork