Hog Producers Positioned to Withstand Higher Canadian Dollar

CANADA - H@ms Marketing Services says the majority of pork producers in western Canada have protected themselves from the rise in the value of the Canadian dollar stimulated by rising interest rates, Bruce Cochrane reports.
calendar icon 11 September 2017
clock icon 3 minute read

Last week the Bank of Canada raised its benchmark interest rate by one quarter of a per cent, the second increase in less than two months stimulating an almost immediate increase in the value of the Canadian dollar.

Tyler Fulton, the Director of Risk management with h@ms Marketing Services, says in western Canada a large portion of producers have a significant number of their hogs contracted for the next several months so they're generally well positioned.

Tyler Fulton-h@ms Marketing Services

Almost all of the hogs produced in Canada are priced off of a US pricing point.

What that means is that it's a market formula that references a US index and adjustments are made to reflect the exchange rate so, when we see an appreciation of the Canadian dollar versus the US dollar, then Canadian hog prices actually decline and so those fluctuations impact on hog prices in Canada.

I can speak for a lot of the independent producers in western Canada in that they were very proactive in hedging their prices this fall, not really because of the risk that was perceived in the Canadian dollar but more on the hog supply side.

It was fairly obvious that we were going to be looking at record production and that there would be concerns about the impact there would be on price.

But, when a hog producer hedges, they're hedging their Canadian dollar hog price and so it protects them against adverse effects as well on the exchange rate.

With hog prices already pushed to some of their lowest levels in months, Mr Fulton doesn't recommend action at this time.

However, if we see a bit of a surge higher, he suggests producers consider capturing that increase if they're looking for more protection over the winter.

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