How much of this grain and oilseed price rally is real?
Since the lows set in early March, Chicago corn futures rose about 20 percent, Chicago wheat climbed 31 percent, Minneapolis wheat rose 37 percent and Chicago soybeans soared 44 percent.
The big investment funds are again pouring money into commodities.
Skeptics say the rally is overdone. There are too many unemployed and too many people focused on paying off debts for the economy to boom again, they say.
Also, rapidly rising commodity prices will increase business expenses and crush the green shoots germinating in the economic garden.
Read Also
Bond market seen as crop price threat
A grain market analyst believes the bond market is about to collapse and that could drive down commodity values.
Others say while U.S. growth will be restrained, China’s stimulus spending is firing up the Asian giant again and its demand for commodities will be greater than forecast.
The big funds are also investing in commodities because they worry about inflation and U.S. currency devaluation.
Commodity futures priced in U.S. dollars tend to rise when the greenback falls. In other words, commodities act as a hedge against a weak American buck.
In the last three months, the U.S. dollar has depreciated close to 15 percent against a basket of major world currencies (and even more against the loonie) and so maybe a third to a half of the rally in grain prices can be chalked up to the currency factor.
But fundamental factors also support grains: late seeding in the U.S. northern plains and eastern corn belt, drought in the western Prairies, a disappointing U.S. hard red wheat harvest, less than ideal growing conditions in Europe, Australia and Argentina and China’s voracious oilseed demand. Also, it is dry in China’s northern soybean region with May rain the lowest in 60 years.
All this shows supply and demand fundamentals are behind at least part of the futures market rally.
Cinderella misses ball
Alas, canola is missing out on most of the rally. It rose until mid-May but then the loonie became supercharged and reduced the gains. Also traders began to believe farmers would seed more canola than expected.
But by early this week, traders could no longer ignore the severe dryness in the western Prairies and the threat of frost for the morning of June 2.
That lifted canola, but the effect might be offset by word from China that Beijing is subsidizing its crushers to buy from Chinese rapeseed growers as they harvest what is expected to be a record large crop.
That, reinforced by the strong loonie and rising ocean freight costs, made canola imports unattractive, dimming Canada’s 2010 export hopes.
