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Canadian Exchange Rate Expected to be Main Driver of Agricultural Profitability in 2017

9 January 2017, at 12:00am

CANADA - The Chief Agricultural Economist with Farm Credit Canada expects the low Canadian dollar to be the primary driver for profitability for Canadian agriculture in 2017, writes Bruce Cochrane.

Farm Credit Canada has released the first of a series of Agricultural Outlook Reports for 2017.

J.P. Gervais, Farm Credit Canada's Chief Agricultural Economist, says the Canadian dollar has been a major driver for profitability in the last couple of years and could have the biggest influence on the overall success of Canada's agriculture industry in 2017.

J.P. Gervais-Farm Credit Canada:

Our forecast for the Canadian dollar with respect to the US dollar is for, on average, to be 75 cents.

We expect maybe that we'll see a bit of weakness in the exchange rate or the value of the Canadian dollar early on in the year driven by the spread between interest rates in the US and Canada.

Interest rates in the US are definitely going up where as interest rates in Canada, slightly going up but not expected to increase as much as in the United States.

Oil prices, while a lot of people expect oil prices to be a little stronger this year than last year, I'm a bit suspicious of the forecasted oil prices are going to climb significantly.

All in all we do expect an exchange rate for the Canadian dollar with respect to the US dollar that stays roughly where it is, on an average being 75 cents.

Maybe a little bit weaker to start off the year and then maybe a little bit stringer throughout the end of the year.

This is definitely one of the drivers that has the most impact on farm cash receipts.

A lot of the commodities that we sell are either directly priced in US dollars or the Canadian price is based off the US dollar.

Not only that, the strong demand for Canadian commodities is supported by the Canadian dollar, which has been lower than the average of the last five years.

Gervais says the demand for Canadian animal protein has been really strong and, at a time when supplies are growing, we need that strength in demand and one of the drivers behind this is the Canadian dollar.

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