Many small- to medium-sized Canadian Christmas tree growers, facing a glut of trees from U.S. growers, consolidation of the industry and pressure from a weak American dollar, have simply turned off their lights.
Like most Canadian agribusinesses, the growers are at the mercy of the U.S. dollar. Unlike soybeans or pork bellies, however, there is no futures market where they can sell forward contracts, and few are large enough to take advantage of currency hedging.
In addition, they have a narrow window to sell their product and lack a major international exchange with multiple buyers, said J.P. Gervais, an economist for Farm Credit Canada.
As a result, membership in the Canadian Christmas Tree Growers Association has dropped from 800 at its peak 20 years ago to about 400 today, says Lewis Downey, executive director of the national group.
A trend toward fewer, larger growers is partly responsible - a familiar pattern in the agricultural industry. But the tree growers also have been hit in recent years with a burst of production in the U.S.
Canadian growers rely on the U.S. market, where many sell most or all of their trees. Roughly 1.8 million trees are sent south each year, said Mr. Downey, with the bulk coming from Quebec, Nova Scotia and New Brunswick. By comparison, about five million trees are sold each year in all of Canada, and a significant number of those come from the U.S., says Myles MacPherson, a Nova Scotia grower who serves as the trade group's president.
Mr. Downey says it has been customary to set prices early in the year, often January, for delivery in the fall. "At that particular time, if we ask $24 U.S., we don't know what the $24 will be worth," he said. "We hope there won't be much variation. But lately, it's fluctuated a lot."
A 10 per cent appreciation in the Canadian dollar can wipe out $2.50 in profit for each $25 tree, Mr. Downey said. "On 40,000 trees, there goes $100,000," he said.
Canadian growers have traditionally quoted prices in U.S. dollars for their American buyers because those customers, Mr. Downey said, "want to know what they're paying."
Currency hedging is simply not affordable for most growers, Mr. Downey said, pointing out that only 25 to 40 growers of his 400-member trade group sell 40,000 trees - about $1 million in revenue - or more each year. Currency contracts typically come in notional values of $50,000 or $100,000, FCC's Mr. Gervais said.
Mr. MacPherson, whose Boylston, N.S.-based Myles MacPherson Christmas Tree Co. sells about 20,000 trees each year, sends more than 90 per cent of them to several midwestern states.
He prices, in U.S. dollars, in January for the Mid-American Horticultural Trade Show in Chicago and he does not hedge.
"We just go with the flow," he said. "If you're in business, you have to suffer the consequences. You've made an agreement, you've set your price, and if you want to do business and sell your product, that's just part of the game."
Fred Somerville of Somerville Nurseries in Everett, Ont., sells about 140,000 trees annually, but this year just five per cent will be going to the U.S., down from past levels. He attributes the drop to oversupply in his key markets.
"They've got a lot more of their own trees now," Mr. Somerville said. "From what I hear - and I do go to quite a few American meetings - there seems to be an overproduction in North Carolina. That means more trees flooding out everywhere at lower prices. You could call it a glut."
That oversupply also affects prices at home. Mr. Somerville has compensated by changing his mix - selling more higher-priced firs, versus pine and spruce - and trying to increase productivity and cut costs. But tree growers can't rapidly adapt their inventory - it can take up to 15 years to grow a tree.