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The Price of Money

The Price of Money

The Price of Money       

Since many of us work in the global floral trade the cost of currency is as important as the cost of the product itself. The exchange rates are as volatile as the price of the flowers and as a result traders must take into account the rate today when buying vs. the rate tomorrow when selling.

Looking at the Colombian Peso vs the US Dollar there is some much needed breathing room for growers since rate has improved by over 400 pesos per dollar since August 2014. For growers getting paid in US Dollars the exchange rate for local currency can make all of the difference between a profitable year and a loser.

Looking over ten years the peso relative to the Dollar has seen some huge swings. From a one time high of 2,640 pesos per Dollar in 2006 to a low of 1,654 in 2008 to a gradual increase to 2,429 today. This should help some growers stay healthy with an improved balance sheet.

The Ecuadorians are in a very different place since they use the US Dollar as their currency so there are no exchange rate issues when dealing with US buyers. However, the situation looks much worse when trading with Russia and Europe.  A strong Dollar against a falling Ruble is a bad combination for growers. Russian buyers can’t easily pay for high priced roses when their buying power has been literally cut in half.

This exchange rate game is somewhat counter intuitive depending on your perspective. The seemingly good news that the Ruble is rising sounds good until you need to buy a Dollar.  While you can exchange a Dollar for more Rubles than a week ago you would conversely need more Rubles to buy a dollar to pay for goods or services.

The Russian Ruble vs. the Dollar over 10 years has been relatively stable around 40 per Dollar.  The Ruble has made a comeback within the last week reaching 70+ for a few days. This would be good news if the buyers could pay in Rubles but since they need to pay in Dollars it now takes twice as many to make a Dollar vs. last year. Many banks will not trade Rubles for Dollars so they do not get stuck with falling currency.

What does this mean for Valentine’s Day in America? I suggest that suppliers are going to seek payment in Dollars in order to get the best exchange rate. This would suggest that the US buyers will be in the best financial and negotiating position when buying foreign based products. This further suggests that there might be more supply than demand and that can be disruptive to the market forces.

Since Colombia is somewhat less dependent on Russia and Europe than Ecuador they should be in line with supply, demand and pricing. The wild card is Ecuador. The growers there are historically firm on holiday pricing but that is when they had the Boris and Natasha types willing to pay those prices.

A strong Dollar will also be attractive to Canadian vendors as well as the Dutch so the Tulip market should be interesting to watch.

Ecuadorean grower programs their roses for Woman’s Day March 8 and there is little they can do to change that programming to meet Valentine’s Day almost 30 days earlier.

With Valentine’s Day falling on a Saturday the market is always a bit less predictable, but as long as the weather stays bearable in the populated US the holiday should be a good one.

As always, deciding when to buy and how much to pay for holiday product remains an exercise in internal fortitude.

Williee Armellini
Editor: Flowersandcents.com

 

2 Comments

  • Wow someone is actually reading my words. Thanks for your comments and I am glad you are bringing this to our attention. I think in times like these the best that can happen are new relationships. Adversity is not new to the flower industry and this is not the last issue we will face together. The Global market is littered with companies that did not bend in the wind.

  • Thank you Williee for share this thoughts and your research
    In fact our Ecuadorian farms are in financial difficulties and they need a good Valentine. Normally they maintain 30 to 50% of Russian market and right now is below 15%, so we have extra good quality offer.
    Many farms are taking drastic measures – cutting staff and production areas. We started with the closure of Ingueza one of the well known quality roses farms in the market and we know some farms that already fired some people.
    Right now is when we need extra help – appreciate the quality, don’t bet to much, increase our marketing efforts, more prebooks and payments on time.
    Wish you to all of you a good holiday !

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