Commodities, including grain and oilseed prices, climbed last week as the embattled American dollar fell to new record lows against the euro and Japanese yen.
The U.S. dollar’s weakness has not been obvious to Canadians because the loonie has stayed near parity. In other words, the loonie has held steady against the U.S. dollar but is falling against the euro and yen because traders think the weakening American economy will drag down Canada’s economy.
In many respects the loonie is in a good position. Canada doesn’t want it to rise far beyond the U.S. dollar because it hurts the manufacturing sector, including meat processors.
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And Canadian offshore exports should be helped by a loonie that is falling relative to the euro and yen.
The weak U.S. dollar, economy and stock and bond markets have caused global investors to shift money into commodities, one of the last investment areas where prices are rising. This extra money caused commodity values to rise even more.
But at these high levels, the market is volatile. Worries about the effect the U.S. credit crisis will have on the global economy can cause grain prices to drop, as they did March 17.
On the fundamental side, the U.S. Department of Agriculture tightened its forecasts of year-end U.S. wheat and soybean stocks March 11.
USDA projected a soybean stockpile of 140 million bushels, the smallest season-ending figure in four years. Traders had expected a figure of 153 million bu.
The wheat carryout, set at 242 million bu., is down 50 percent from last year and the lowest level in 60 years. Traders had expected 263 million bu.
The corn carryout was unchanged at 1.438 million bu.
While the tight wheat carryout supported the market, the prospect for the 2008 crop was buoyed by improved moisture in the eastern part of the U.S. hard red winter wheat belt.
The moisture situation for European winter wheat is also good.
