The appreciating U.S. dollar is putting more downward pressure on already slumping grain prices, says an analyst.
The American currency is up 5.5 percent against a basket of world currencies since July 1.
The euro has fallen 5.4 percent against the U.S. dollar in that time, the Japanese yen is down 5.3 percent and the Russian ruble has plummeted 9.6 percent.
The Canadian dollar has fared better than other world currencies, dropping 3.5 percent to about 91 cents to the U.S. dollar from 94 cents.
Errol Anderson, an analyst with ProMarket Wire, expects the U.S. dollar to be in a prolonged upward trend.
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That will make U.S. grain relatively more expensive in export markets, lessening demand, which will put more downward pressure on grain prices.
Commodity prices need to be reduced to make North American crops competitive with crops from places such as the Black Sea region.
“The Russian ruble is at an all-time low to the U.S. dollar now, so that gives Black Sea wheat a distinct advantage,” said Anderson.
Russia is taking away important U.S. wheat markets such as Egypt.
“That will stall American exports,” he said.
The strength in the U.S. dollar has a lot to do with the weakness in the European Union’s economy and its currency. Anderson said the faltering EU economy is going to keep grain prices depressed for the next two or three years.
“I’m a real believer in deflation, and I think we’re smack in it now,” he said.
There may be weather-related rallies in grain prices, but they will be fleeting.
“The economic direction of global commerce won’t allow rallies to hold,” he said.
J.P. Gervais, chief economist of Farm Credit Canada, isn’t as pessimistic about the consequences of a rising U.S. dollar.
He said it is a sign of strength in the U.S. economy, which is Canada’s top agricultural trading partner. The U.S. accounted for 48.4 percent of the total value of Canadian agricultural exports in 2012, according to a recent report by Agriculture Canada.
An appreciating U.S. dollar also means more Canadian dollars in farmers’ pockets when they sell their crops, livestock and meat.
“All other things being equal, I want a strong U.S. dollar,” said Gervais.
“It’s not all bad. I’m not too worried about the movement that we’ve seen.”
Gervais said the EU is considering implementing a $57 billion quantitative easing program just as the U.S. is poised to bring its similar program to an end in October.
“For Europe to even be considering this means they’re really in a bad spot,” he said. “The expectation is that the central bank in Europe is going to start being a little bit looser in terms of monetary policy.”
Market anticipation of the European Central Bank’s next move is lending more support to the already ascending U.S. dollar.
