Canada’s weak dollar is creating new optimism for swine producers and pork processors, who hope it stays in the basement for a very long time.

The Canadian buck was hovering at about 70 cents at the end of January, with no indications of any real rally for two years or longer, creating an enormous advantage for exporters, says Martin Rice, executive director of the Canadian Pork Council and Richard Davies, senior vice president, marketing and sales, for Olymel SEC.

“I think it’s definitely having a positive effect on the overall psychology,” Rice said in an interview with Prairie Hog Country. “I think people are looking at this as, how long will the price of oil, basically, stay low. It seems to be that it’s going to take a little while before the price of oil comes back up, and that’s a key indicator.”

Prices for pork, pigs and grain are set in the U.S., meaning Canadian producers and processors are currently getting roughly $1.40 on the dollar for the products they export. It also means producers are paying $1.40 on the dollar for feed, said Rice. That cuts the farmers’ share of the benefit by about half, so producers are probably seeing between 40 and 50 per cent of the benefit he said.

There are numerous expenses on the farm that will not increase because of a weak dollar, said Rice.

“The costs that don’t go up – labour, interest, capital and other management costs, the operation of the barn, electricity, utilities – those are not affected so much in the short run by the exchange difference,” he said.

From a processor’s perspective, the weak dollar puts Canadian plants on better competitive footing in comparison with their counterparts in the U.S., said Davies. “What it does for us as processors, it makes . . . our total overhead a lot more competitive against our U.S. counterpart, so it obviously makes us a lot more competitive when you compare benchmarking in U.S. packers, which is a good thing.”

Davies told Prairie Hog Country that, aside from the impact of the U.S. repealing COOL on pork and beef (mandatory country of origin labelling), the weak dollar raises the value of Canadian pigs, so those producers who have a choice between U.S. and Canada may be more interested in having their hogs processed here. Hog supplies are still an issue for the only two plants in Canada – Brandon and Red Deer – that can compete with U.S. processors, which are running at high speed and full capacity and therefore have advantages of scale that are not available in Canada’s processing sector, said Davies.

Assuming that the Canadian dollar will remain weak for a sustained period of time, Davies said he is hopeful that Olymel’s Red Deer plant can be brought up to full capacity on its first shift and perhaps resume a running a second shift. A second shift had been started at Red Deer a few years ago, but was shut down because the plant had trouble finding enough workers and then started running low on hogs as the industry hit a major downturn, said Davies.

Canada’s weak dollar is now making things look much better for the processing sector, he said. “It’s a favourable environment for us, I would say, for at least the next couple of years.” Olymel sells roughly 40 per cent of its pork products into domestic markets, almost exclusively in Western Canada, said Davies.

The Red Deer plant supplies major retailers as well as the food service industry, he said. Domestic consumption of pork and poultry is making a bit of a rebound because of the high price of beef and there is also potential for growth in Asian markets, he said.

“The Asian market certainly has lots of potential, not necessarily much increase in major markets like Japan, but China I think will certainly be very interesting in the years to come, and we’re well positioned to supply that market from a geography point of view and from a relationship point of view. “It’s all good news in my view. You need to separate the trees from the forest and see what’s coming. That’s why we continue to invest in this business.”

He and Rice both acknowledged that it will be some time before local suppliers such as building contractors see the benefits of a weak Canadian dollar. “There is still quite a bit of caution,” said Rice.

“The hog industry has not replaced all of the equity it lost; it’s still well behind the five-year crash, so there is not much equity there that producers can use to obtain more debt.” Any expansion or new construction would need participation from the financial industry, which is less confident in hog producers than it was before the five-year crash, he said.

“The conditions aren’t there yet to have a boom in production as we had back in the late 80s and 90s. (The crash in 1998) was intense, but it was short lived. There was a lot of production that collapsed, it was vicious. U.S. producers were hit a lot harder at that time, said Rice.

“We were shielded from it somewhat by a low dollar. It was pretty fast. There were very bad three or four quarters in total, but it wasn’t dragged out over years,” he said. The more recent crash, by comparison, seemed to involve wave after wave of bad news, including an at-par dollar, disease issues and a rapid increase in feed costs related to the ethanol industry, said Rice.

How long the dollar will stay where it’s at is still a matter of speculation and are tied to oil prices, he said. Oil prices had started to rebound somewhat late in January, but Rice felt that those prices could still drop. “Certainly, over the long run, you don’t like to think one sector is doing well at the expense of another,” said Rice.

Livestock and grain producers need long-term profitability to maintain farms and to maintain succession on those farms, he said. Davies said it will take some time before the weak dollar translates into expansion within the industry.

“We went through that in the 90s and the early 2000s, and after all that boom that we had at that time, there was a lot of pain here and there. I guess the boom side will be a little more cautious moving forward, but I still believe there’s certainly, even in the context of a strong Canadian dollar, I think there’s still very positive outlooks for the Canadian pork industry moving forward in the long term,” he said.

“It’s a favourable environment for us, I would say, at least for the next couple of years. Stress will be alleviated by our weak dollar and it’s going to help us pull through and build on our business and our Canadian industry.” • — By Brenda Kossowan