The Good, Bad & Ugly

The Good: The Bank of Canada and U.S. Federal reserve announced their interest rate policies today. Both central banks settled on a drop of 25 basis points (0.25 per cent).

The Bank of Canada started the day off by announcing their 25 basis point cut which brought the rate down to 2.5 per cent. This is the lowest interest rate in almost four years in Canada. The tame inflation data released yesterday which indicated that the year on year inflation rate was 1.9 per cent in August.

The U.S. rate moved down to 4.125 per cent (4.0 to 4.25 per cent) during today’s announcement. The rate committee vote was 11 to 1 for a 25 basis point reduction. The dissenting vote was from the new Fed member Stephen Miran who voted for 50 basis point cut.

The interest rate moves are good news for the Canadian economy as rates have remained above the neutral rate for most of the last year. This interest rate adjustment brings rates close to two per cent rate which is considered by most economists to be neutral.

The Bad: The bad news today was that spring wheat markets closed down by two to three cents per bushel. The losses in spring wheat were modest when compared to the six to seven cents per bushel drop in winter wheat markets. The spring wheat December contract closed at US$5.74 per bushel. The bad news is that spring wheat futures remain near contract lows. Spring wheat was not helped by Statistics Canada estimating spring wheat production at 26.6 million tonnes, which was similar to last year, despite lower area this year.

The Ugly: Statistics Canada forecast 2025 canola production at 20.0 million tonnes which is up 4.1 per cent from last year. This pushed November canola futures down by C$12.70 per tonne to settle at C$628.10 per tonne. This is ugly news for the canola market as the contract pushed below the 20-day moving average. This is a sharp turn-around from the rally yesterday which settled above the 20-day average. Canola appears to be headed nowhere despite the fact that canola remains undervalued.

Soybean oil closed down by 2.67 per cent during today’s session which drove canola lower. Disappointment over the progress by the EPA in finalizing their new biofuel policy seemed to drive the market moves today.