Two conclusions can be reached after looking at the main agricultural commodity markets in the week ending Dec. 19.
Either crop futures prices have put in their lows for the year and are beginning to rally, or they haven’t climbed much higher recently and the bottom has yet to be found.
It depends on which factors are considered and which country the analyst is from.
Based strictly on U.S. commodity exchange prices, most grains rallied during the week. Chicago winter wheat and Minneapolis spring wheat moved up by about 15 percent.
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China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
But Winnipeg canola stayed flat.
Analysts say non-agricultural factors are influencing these prices, including currency exchange rates, oil prices and wildly different economic outlooks.
“There’s a massive tug of war going on in the markets,” said Ken Ball of Union Securities in Winnipeg.
“There’s been a huge, huge move (down) in the U.S. dollar and that hits all the markets that are denominated in U.S. dollars (such as most agricultural futures prices, which have gone up in response).”
However, in the European Union and Japan, the sudden rally in their currencies relative to the U.S. dollar is larger than the grain price rally on U.S. commodity exchanges. The result is, in local currency terms, grain prices are flat or still falling.
But oil prices are falling, and oil has a big influence on the value of the Canadian dollar so the loonie has not rallied as much as the euro and yen.
That means farmers here, in Canadian dollar terms, have enjoyed a slight rally in grain prices.
“The move in the Canadian dollar has been very subdued,” said Ball.
“It’s collapsing versus the euro, the (Swiss) franc and the yen, so that should allow our prices to percolate higher, but that hasn’t happened because we have this lead weight of an energy market.”
Joe Victor of Allendale Inc. in Chicago agreed world grain markets and the apparent rally on the charts are a product of the struggle between currency and energy impacts.
While a weaker U.S. dollar has propped up grain prices on American exchanges, falling oil prices, sinking to less than $40 US per barrel, are keeping a cap on any rally.
Ethanol and biodiesel are now valued as replacements for fossil fuels, so whatever happens to fossil fuel prices affects the demand for biofuel and its influence on grain prices.
Victor thinks a weakening U.S. dollar will have a bigger effect on grain prices than the slump in oil prices, but it depends how far energy prices fall.
“We feel that from a technical standpoint, that we have built a bottom for corn and wheat, but we still have to be respectful that what took us up to July has taken us down, and if crude continues to fall by another $5 or $10 per barrel (grain prices could fall beneath recent lows),” Victor said.
The loonie has been weaker than most other world currencies recently, mainly because its value depends in part on oil prices, Ball said.
“There’s a battle going on between the crude and the U.S. dollar on who’s going to dominate and influence prices, and they’re partially canceling each other out,” he said.
While Victor is comfortable predicting that the bottom in most crop prices has been reached, Ball thinks the market has not yet supplied a clear answer.
“If the U.S. dollar starts to go up now while energy goes down, we could see some very aggressive selling hit some of these commodity markets, and grain will be part of that,” Ball said.
“But if the opposite happens, we could see some very sharp rallies.”
