Strong U.S. dollar, buyer complacency weigh on grain prices

As much as 100 millimetres of rain in the southern U.S. Midwest this week are de-laying harvest and providing the first significant market lift in months. If the weather continues wet — and the U.S. weather service predicts more moisture than normal in October in the Midwest — it might shake complacent buyers from their expectation that prices will continue to fall.

We’ve noted before on these pages that the strong U.S. dollar is, along with the expectation of a record large crop, keeping downward pressure on U.S. grain prices.

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An expensive dollar encourages buyers to avoid the United States and turn to suppliers that have weak currencies.

The positive U.S. monthly jobs report Oct. 3, which dropped the unemployment rate .2 of a percentage point to 5.9 percent, which is the lowest level in six years, gave more support to the U.S. dollar.

The U.S. Federal Reserve closely watches employment metrics as it times its transition from a stimulus policy to a more neutral stance.

A continuing drop in unemployment supports the idea that the Fed will increase interest rates next year to prevent the economy from overheating.

Meanwhile, central banks in Europe and Japan are moving toward stimulus to spark life in their moribund economies.

The prospect of better interest re-turns in the U.S. attracts capital to the American buck and lifts its value.

We’ve seen the Canadian dollar fall below US 90 cents, and it will likely stay there well into next year.

The weakness of the loonie against the U.S. buck is good news for Canadian livestock producers.

Cattle and hog prices are at or near record highs already, and the strong U.S. buck makes Canadian livestock seem cheap for American buyers. Sales made in U.S. currency net more loonies in Canadian producers’ pockets.

But on the grain side, the weak loonie isn’t fully offsetting the damage the strong U.S. currency has on grain prices.

Canola has been falling almost in lock step with soybeans and soy oil, even as the loonie weakened.

Strong demand is needed to really get grain prices off these lows.

Importers have not been aggressive because of the strong American dollar and because there was no point buying when the price would likely be cheaper the following week.

There is no sign that the U.S. buck will ease off, but this week’s price bump from the harvest delay might shake buyers from their complacency.

Let’s hope that triggers larger exports.

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