Investor psychology is swinging toward optimism, as seen in a couple of weeks of rising equity and commodity prices.
Jobless numbers are still rising, but an increasing number of investors appear to believe that the United States is starting to get a grip on its banking mess.
A couple of big American banks posted profits in the first quarter and the Obama administration has laid out its plan to remove toxic assets from the books of U.S. banks.
The theory is that a combination of government and private capital will buy the devalued loans and securities, removing them from banks’ balance sheets, giving them more strength and prompting them to start lending again and resuscitate the economy.
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One result of this plan is a weaker U.S. dollar. There are a couple of explanations for this. Some think that the plan will revive the economy, prompting investors who have been on the sidelines with their money in U.S. dollar government bonds to start shifting money from the safe investment into equities and commodities that have the potential to rally as the economy picks up.
Another reason for people moving out of the dollar is that huge government borrowing and spending could lead to inflation that would erode the value of the dollar.
Investing in commodities is seen as a way to profit if inflation drives up the price of raw materials.
With that underpinning, any news in the grain and oilseed sector that points to reduced supply or increased demand will help to rally prices.
So traders early this week were focused on three things: a flare-up in the farmer-government dispute in Argentina; dryness in the U.S. winter wheat belt; and overly moist conditions in the northern plains.
Argentine farmers have begun another strike to protest the government’s tax on soybean exports. In addition to raising large amounts of money for government coffers, the tax is designed to discourage exports and keep domestic food prices low. But the tax robs growers of much of the profit in producing the crop.
In protest, Argentine farmers are not selling grain or livestock for a week. If the strike lasts longer, it would impede exports from the world’s third largest soybean exporter.
The dispute is supporting the price of oilseeds, including canola.
The second issue on traders’ minds is the dry weather in the U.S. winter wheat region. That story is covered on page six.
The third issue is the wet U.S. northern plains and Midwest.
North and South Dakota have experienced double the normal precipitation this winter.
For some weeks, Manitoba has warned of the potential for flooding in the Red River Valley. Last week, U.S. authorities said there is a risk of near record flooding in the valley and warned that seeding could be delayed or prevented on as much as a million acres.
The eastern part of the northern plains was expected to get five centimetres of rain or snow this week with a likelihood of more moisture by the March 28 weekend. The moisture could spread into the northern Midwest.
All this is reviving memories of last year when cool wet weather delayed seeding in the Midwest, prompting a rally on grain futures markets.
Despite the seeding delays, U.S. farmers produced high yields. While memories might be stirred, the Midwest is not as wet as it was last year.
But it is wetter in North and South Dakota. Delayed seeding there could cause worries about frost damaging a late spring wheat harvest, prompting a shift to soybeans, which are already expected to take acres away from wheat and corn.
