Grain prices have been see-sawing lower as the market continues to digest some updated weather reports & keeping a watchful eye on central banking decisions, namely the US Federal Reserve. The “Fed” went out and raised US interest rates 0.25% on Wednesday, December 16th, the first time they’d raised since since 2006! They further suggested that US interest rates will creep up to 1.75% by the end of 2016! From a data standpoint, the U.S. isn’t necessarily doing amazing – the “Fed” suggests that their economy is in its strongest expansionary cycle in the post-World War II era. Conversely, a number of statistics suggest otherwise, mainly that of the labour participation rate (the percentage of Americans employed and/or looking for work is its lowest since the late 1970s) and industrial production & factory activity trending lower. Overall, the interest rate increase strengthens the US dollar, which in turn makes commodities more expensive for other international buyers, and with commodity prices already low, the timing isn’t necessarily great for commodity suppliers (unfortunately , that includes farmers).
The decline of the Canadian Loonie has dropped below 72 cents, mostly to do with the US interest rate hike but that decline is more than I was expecting because I was not expecting the interest rate announcement to coincide with US Congress removing their US oil export ban, suggesting more oil will hit the market (great for oil trading companies, bad for major net exporters’ currencies, like Canada). While American basis levels have dropped a bit on the strength of their currency, Canadian basis levels have improved, providing some opportunities to lock in basis and price out cash down the road when the futures markets rally (a call we’ve been firm on since back in early October!) Staying up with the cross-49th parallel relations, US Congress is set to repeal their country-of-orgin-labelling meat law before the holidays, instead of paying $1 Billion to Canada and a couple hundred million to Mexico. The question is now, whether or not US meat buyers will go back to their pre-COOL demand levels (one would hope so, given the purchasing power of their dollar over the Loonie).
On the weather front, we continue to watch the wetness in southern Brazil but also some drier conditions creeping into major-soybean producing regions in Mato Grosso that has led to about 10% of acres there getting replanted. Russian winter crop conditions going into dormancy are close to their long-term averages while the French winter wheat crop is seen heading into the dormancy phase in its best condition ever (a 3rd consecutive record wheat crop could be brewing there). However, with the milder winter experienced thus far in North America, concerns and questions abound as to whether or not Mother Nature is timing things up for a drier year here.
To growth, Brennan Turner: President & CEO | FarmLead.com