Loonie Spook Grains Higher
Grain prices in Western Canada found some legs, thanks to a weaker Canadian Dollar (more on that later). Hard red spring wheat prices got the biggest boost, climbing an average of 6.3% in the past week! This was followed by durum wheat, up 3.7% for the week and creeping back towards that $8 CAD / bushel in most places. Canola gained a little more than 2% in the past week to eclipse $11 per bushel in most places across the Canadian Prairies. However, because of negative sentiment associated with no news from the Indian government regarding an extension of the fumigation exemption, yellow pea prices fell.
This week, the Bank of Canada left interest rates unchanged in the Great White North. The central bank said that the strong Canadian Dollar has weighed on inflation and exports. After the announcement, the bank's leaders said they would be "cautious" with future rate increases. The market took this as a bearish signal, and the Canadian Loonie could fall below $0.78 cents USD (or $1 USD = $1.283 CAD) for the first time since mid-July 2017. As a reminder, the Loonie hit a 15-month-low in early May 2017, dipping below 73 cents USD before going on the rally we've seen the last five months.
The next big factor for the Canadian Dollar will be whether the U.S. Federal Reserve increases its interest rate. The “Fed” meets again next week, but the market doesn’t expect the next rate hike until December. The Fed has signaled that a rate hike will come during their final meeting of the year. The Fed also is pushing for at least two other hikes in 2018.If the Fed does increase rates, we may see the CAD-USD trade sink back to pre-summer rally levels (and where we saw things trade from early 2016 through to May 2017) at that $0.75 - $0.78.
Coming back to the factors, Brazil has received some rain, but temperatures are still high, meaning the need for moisture still exists. There are some rains in the forecast, but planting remains behind last year's torrid pace. About 25% of Brazil’s soybean area has been seeded, including Mato Grosso jumping 11 points in 1 week. However, because of some dry soils, seeds aren’t germinating and so, reseeding has started.
The fall-seeding campaign has been slowed in northern Europe and Baltic states (i.e., Latvia, Lithuania, and Estonia) because of some "excessive moisture," according to MARS, the EU's agronomy division. Conversely, lower precipitation totals since September in southern Europe and northern Africa hasn’t helped winter crop prospects. Areas that are affected include southern France, western Italy, Greece, Spain, Portugal, Algeria, and Morocco. Ironically, the areas that produce the most grain haven't been harmed too bad. Winter crop seeding in Germany, France, and Poland was generally uninterrupted and earlier than usual.
Switching continents, the US corn harvest and winter wheat planting pace is behind schedule. Rain is the main culprit, as it’s slowed combines and drills down. The rain in winter wheat seeding areas is a blessing and a curse. The moisture is needed but the best yields of the US winter wheat crop happen when the crop is planted earlier. We’re still many months from knowing what the US winter wheat crop might even look like, but getting it in after Halloween can be a bit spooky for farmers who aren’t used to that much delay.
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