The Canadian loonie continues to struggle against the United States (U.S.) dollar, dropping below 74 cents this week thanks to the continued decline in oil prices and the diverging monetary policies (interest rate setting by central banks) of the two North American nations. Oil prices have dropped to levels not seen since February 2009 and the 64 per cent year-over-year decline is one of the worst declines over a 365-day period in history (2008-2009 saw a decline of 68 per cent). On the interest rate front, the U.S. continues to teeter on the edge of increasing interest rates, while the Bank of Canada has suggested that they are not opposed to setting negative interest rates should the weakening of the Canadian economy persist. More or less, a savings account that actually pays decent interest rates is likely on a few Christmas wishlists this holiday season.
On the weather front, expectations are increasing that the U.S. Midwest could see a taste of some drier fall weather in 2016 but given the likelihood of U.S. corn acres inching closer to 90 million for Plant 2016, corn touching far above a $4/bushel handle in Chicago could be tough. South American weather remains generally favourable although southern Brazil is experiencing one of its wettest November-December periods in history (albeit they will welcome the rain after experiencing droughts the last two years).
Statistics Canada came out on Friday, December 4th with another whopper of a production report, blasting away market expectations by pegging this year’s Canadian canola crop at 17.2 million tonnes, an increase of almost 4 per cent from last year and the second largest on record after 2013’s monster. The market wasexpecting a number around 15.6 million tonnes, but that number got trumped by average yields in Western Canada climbing 9 per cent year-over-year. Thanks to the fact that most of the private market was expecting a higher number, strong soyoil prices, and a weak Canadian loonie, the market rebounded from short-term losses. Total wheat production was pegged at 27.6 million tonnes, again well above the 26.7 million guesstimated ahead of the report, but smaller than 2014’s 29.4 million tonne crop. This included almost 20 million tonnes of spring wheat and 5.4 million tonnes of durum, which is almost 15 per cent higher than the five year average production number.
Also heading into the holidays, we got the United States Department of Agriculture (U.S.D.A.) DecemberWASDE report, but much like trading can be in the last month of the year, the report was pretty much a non-event. U.S. soybean ending stocks remained at 465 million bushels, +143 per cent year-over-year and the highest since 2006-07, while corn’s carryout of 1.785 billion bushels is +3.1 per cent year-over-year. For U.S wheat, ending stocks were kept at 911 million bushels (+21 per cent year-over-year) but globally, world production was raised to a record high of almost 735 million tonnes and global carryout to 230 million tonnes (+8.4 per cent year-over-year). While the report could be interpreted as bearish for wheat globally, the weaker Canadian loonie was the biggest reporting factor this week.
As per the PDQ Info grain price website, Western Canadian wheat prices moved up an average of 2.3 per cent this week, with most of that change being reflected on the cash side of things, while basis improved by a cent or two in most regions. As I have mentioned in past columns, the currency trade can and will be the one to watch over the rest of the holiday season
Brennan Turner President & CEO | FarmLead.com