With major reports from the United States Department of Agriculture confirming big grain and oilseed supplies, about the only surprise last week was the U.S. dollar’s charge higher.
The U.S. dollar gained momentum after three reports showed better than expected job creation and retail sales in April, and a narrower than expected trade deficit in March.
The greenback gained against all currencies, but Canada’s loonie performed particularly badly, carrying the additional burden of an uncertain political climate caused by the federal sponsorship scandal. An election call could come as early as the end of this week.
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On April 1, the Canadian dollar traded at 82.3 cents US. As this was written May 16, it was struggling to keep above the 79 cents level, a drop of about 3.6 percent.
Currency fluctuations affect grain prices. A falling Canadian dollar increases the farmgate price of commodities priced in U.S. dollars. However, some of this benefit is offset because a strong U.S. dollar tends to weaken international demand for grain and depress U.S. grain futures.
It is hard to say where the currencies will go next. Canada’s political uncertainty is likely to continue into the summer if the country goes to the polls in June.
Assessments of the U.S. economy vary. It is performing better than the European Union and Japan, but it still has trade deficit problems that could cause investors to back off from the American dollar.
With so much uncertainty it seems pointless to review analysts’ outlooks for the dollar.
And although currency fluctuations affect grain prices, they won’t override the fundamentals of the grain and oilseed market that are still negative.
So far, for every production problem such as drought in Spain and dryness in Australia, there is positive production news such as a big wheat crop in China that will reduce its import needs.
But it is still early and there is plenty of time for weather problems to develop. Let’s hope they don’t happen here.
