The falling Canadian dollar largely offset the negative impact on local markets of the larger than expected crop numbers in last week’s Statistics Canada report.
Canola futures barely budged last week and prairie cash spring wheat prices fell less than the American wheat futures market, thanks mostly to a decline in the value of the loonie by about one U.S cent.
The Canuck buck lost ground to the U.S. currency because the latter was gaining against most currencies.
It appears that Republicans in Congress will be able to pass a tax cut bill, which could help keep the American economy bubbling along.
Growth in employment and the economy will encourage the U.S. Federal Reserve to continue an aggressive program of interest rate increases that will further support the greenback.
Canada’s economy is also doing well, but the uncertainty caused by the bumpy negotiations over the renewal of the North American Free Trade Agreement have investors steering clear of the Canadian dollar.
It also has the Bank of Canada taking a cautious approach to interest rate hikes, giving investors another reason to avoid the loonie.
The simple view on currencies is that a weaker Canadian dollar lifts the farmgate value of crops and encourages stronger exports of Canadian grains.
That is true, but the overall impact is more complicated.
If the U.S. dollar towers over most other currencies, it hurts American grain exports, leading to a buildup of unsold stocks that pressure down crop futures markets.
U.S all-wheat exports so far this crop year stand at 13.05 million tonnes, down eight percent from the same point last year. Sales on the books for the rest of the year stand at 5.45 million tonnes, down almost 14 percent.
It could be a struggle to hit the U.S. Department of Agriculture’s target of 27.2 million tonnes of exports.
Meanwhile, Russia’s wheat exports for the crop year are up 27 percent.
America’s soybean exports are also lagging behind the pace needed to hit the USDA’s export target.
If they do, and the USDA is forced to raise its ending stocks forecasts, that will weigh down the prices of soybeans, wheat and corn, and that will depress prices in Canada, too, even with a weak loonie.
The market’s message is that it is oversupplied, and the message is most clearly heard in the U.S. because of the amplification caused by the high priced U.S. buck.
U.S. winter wheat growers are reducing seeded acreage, but it is not helping much when Russia, with a weak ruble, has increased acreage.
And in the U.S., farmers likely won’t leave wheat acres unseeded. They will plant soybeans, corn, sorghum or cotton.
They might use less fertilizer, but that is unlikely because they are shooting for high yields to make up for low prices.
A significant reduction in seeded area would likely require a return to the Conservation Re-serve Program, where the government paid farmers to keep environmentally sensitive land out of production.
The CRP lost most of its acreage during the high prices of 2007-14.
The strongest crop prices that Canadian farmers have enjoyed came when the Canadian dollar was strong because commodities were booming, crop stocks were down and grain exporters all over the world were benefiting.