The real impact of our declining dollar

On agriculture and commodities exports from Saskatchewan

June 1, 2017

Saskatchewan is home to more than 40% of Canada’s cultivated farmland – some of the most productive land in the world. Saskatchewan is Canada’s most important grain-producing region, supplying more than one-third of the world’s exports of durum wheat.

We are also the world’s top exporter of lentils and dried peas. In 2015, Saskatchewan exported a record $15.3 billion in agricultural products, accounting for more than one-third of the province’s total export earnings.

Saskatchewan is the largest potash producer in the world, accounting for approximately 28% of total production in 2015, and hosting almost half of the globe’s potash reserves. The province produces 100% of Canada’s uranium and accounted for approximately 22% of the world’s primary uranium production in 2015, second only to Kazakhstan.

These enviable statistics would appear to suggest that the decline of the dollar, while not a source of exhilaration for snowbirds heading south for the winter, is welcome news for Saskatchewan’s largely export-driven agriculture and commodities sectors. But, sadly, the news is not uniformly positive.

Agriculture

Norm Hall, vice-president of the Agricultural Producers Association of Saskatchewan, said recently: ‘Considering that 97% of what we produce in Saskatchewan gets exported, the low Canadian dollar will be good for everything going out of Canada.’ Simply put, selling grain to the United States and being paid in American dollars means greater financial returns for Canadians. That’s the good news.

Then Hall added: ‘But on the other side of that equation, virtually everything we buy – be it fertilizer, tractors, combines – is based on the American buck.’ So while the value of our agricultural exports is growing due to a declining dollar, the cost of production is proportionately rising – a mixed blessing at best.

Uranium & potash

The received wisdom is that the declining dollar has provided some much-needed relief to our struggling commodity producers. Or has it? If you look closer, you’ll notice that other commodity-based currencies have declined by even more, putting Canadian companies at a disadvantage.

Benjamin Sinclair, writing for The Motley Fool multimedia financial services company based in Alexandria, Virginia, looked at two examples:

  1. Uranium
    Canada’s largest uranium producer is Cameco Corporation and the miner seemed to get a boost from the weak Canadian dollar, since most of its production comes from Canada and uranium is priced in U.S. dollars. But here’s the problem: Kazakhstan is the world’s largest uranium-producing country, accounting for 41% of total output in 2014. And the Kazakhstani currency, the tenge, has fallen by over 50% relative to the U.S. dollar in the last two years.
  2. Potash
    Potash Corporation of Saskatchewan Inc. is also facing some major currency headwinds, a fact that the company doesn’t deny. The company’s two biggest competitors come from Russia and Belarus. And their currencies have each declined by over 50% relative to the U.S. dollar over the past two years.

A declining dollar is not necessarily our friend, especially when you look at the competitive currency context in which we operate. So when you hear Canadian agriculture and commodity producers talk about the benefits of a low loonie, dig deeper.

Daryl Cooper, Portfolio Manager, Scotia Wealth Management, 306-343-3255.
Colleen Schneider, Wealth Advisor, Scotia Wealth Management, 306-664-1860.