Increased Interest Rates Negatively Impact Hog Producers

CANADA - 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, Bruce Cochrane reports.
calendar icon 8 September 2017
clock icon 3 minute read

On Wednesday the Bank of Canada raised its benchmark interest rate by one quarter per cent to one per cent, 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.

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 US dollar which is important because of the relationship on how hog prices in Canada are set relative to the US.

Mr 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, Canada is still looking at profitable prices but, as prices decline, the country could be heading into a period of negative margins for some operations.

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