Currency affects canola
Many canola growers must have been pretty steamed last fall when, after many analysts painted a rosy picture for prices, the market dropped.
One of the factors not given enough importance in the optimistic price outlook was the role of currency fluctuations.
A rising loonie lowers the return from commodity export sales. That’s because the sales are usually made in U.S. dollars.
If you overlay a chart from last autumn of the price of the Canadian dollar on a chart of canola prices, you see canola falling in step with the rise of the loonie.
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Up and down
The dollar topped 75 cents (U.S.) in November and then fell to below 73 cents by the start of 1997.
This helped pull canola prices back up, in keeping with the tight supply-demand fundamentals of the oilseed.
But the dollar is rising again, bounding up much faster than it did last fall.
The week of Jan. 13-19 saw the Canuck buck gain about a half-cent as foreign currency investors were attracted by the promise of continuing low inflation and good economic news.
Although there will probably be more fluctuations in the coming months, most analysts predict a higher Canadian dollar – close to 80 cents.
Any business that exports a lot of product to the U.S., but doesn’t protect itself against changes in the dollar’s value by hedging on the currency market, should reconsider its strategy.
New report, price trend
Last week, wheat futures prices for the 1997-98 crop year rose on a United States Department of Agriculture report that showed smaller than expected winter wheat seedings.
Early this week prices were falling on another couple of reports.
The Australian Wheat Board has forecast farmers there will harvest 23 million tonnes of wheat, a record and much higher than the USDA’s estimate of 21.5 million tonnes.
Also, Sparks Companies, an influential market analyst from Memphis, Tenn., forecast U.S. spring wheat plantings will be larger than expected.
The company said American spring wheat acreage will come in at 23.512 million acres, just slightly less than what farmers seeded last year.
Given that the current winter wheat crop is doing much better than it was last year, the potential is there for the U.S. to produce more wheat in total than last year.
