The story in markets in recent days has been a surprising technical run-up in agricultural commodity prices that isn’t being felt in Canada.
Take oilseeds, for example.
While South American producers have harvested a bin-busting soy crop and American producers are seeding a near record crop, soybean prices are climbing. That’s because traders are looking at American stocks and seeing a pipeline that will be almost empty at the end of the crop year.
In two weeks, since April 28, July soybeans on the Chicago exchange have risen six percent. Soybean oil has risen about five percent.
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Meanwhile, July canola on the Winnipeg exchange has fallen one percent. It is almost all the result of the stronger loonie, although improving soil moisture on the Canadian Prairies and a slightly larger than expected stocks report also contributed to the drop.
Last week I wrote that most bank economists were sticking to their forecast of a 72-73 cent US loonie at year end. The day after, most moved their forecasts to 75 cents.
The possibility of an even stronger loonie was raised on the weekend when United States treasury secretary John Snow said the weaker U.S. dollar has yielded benefits for the American economy, raising doubts in financial markets about Washington’s commitment to a strong dollar policy.
While the stronger loonie has been working against farmers, the markets might soon turn south, too.
Some of the recent rise in commodity futures has been attributed to seeding delays caused by rain that accompanied those tornadoes that struck many U.S. midwestern communities last week.
But rain is almost always good for crops, particularly at this time of year. The rain has improved subsoil moisture and could produce better than average yields that will act as a negative factor in prices.
As we are well aware, soil moisture also has been improving in the western Prairies. And storms dumped rain on dry fields in western Europe recently.
With better moisture, improving U.S. winter wheat ratings and a fast start to U.S. spring wheat seeding, it is puzzling why wheat futures prices took off May 9 and 12. It seemed mostly a matter of technical trading by the big investment funds. Their computer programs saw the market hit a certain price, triggering more buying.
They could fall again when analysis based on reality overtakes this cyber bull run.
