Turkish currency crisis looms over world markets

The country is an important customer for ag commodities, but the big concern is if the crisis spreads to other countries

The world is holding its breath and hoping that Turkey’s currency crisis doesn’t spread to developing nations around the world.

Not only would a currency crisis affect crop and meat prices worldwide, but it could also weaken buying power in specific markets that few people are talking about.

“Turkey is more interesting than we think,” said long-time grains market observer Elaine Kub.

For instance, Turkey is the second-largest export market for American dried distillers grain and solubles, a fact few Americans realize. If the Turkish lira stays weak or falls further, buyers in that country will have trouble paying for DDGs from the United States and that would feed into lower overall demand for U.S. soybean components.

With China already avoiding U.S. soybean purchases and a big U.S. crop coming, that wouldn’t be a good development for U.S. farmers. The U.S. needs to move its soybean crop somewhere, so losing overseas options would present a problem.

For Canada, Turkey is often an important pulse crops market. With world prices mostly based off U.S. dollars, a rising U.S. dollar and falling lira make future sales less likely as buyers see prices in liras rising, while sellers hold fast to prices.

The Turkish market is more important than usual for Canada this year because India has curtailed the ability of its buyers to bring in Canadian products.

Canada needs secondary markets to act as outlets when there are problems with markets like India.

Turkey’s problems, as yet, haven’t spread far.

Argentina has seen its currency hammered too, but most “emerging markets” haven’t been too badly damaged. But if a contagion does hit other emerging markets, people will begin to fret about how to clear the world’s healthy stockpiles of crop.

“If there’s an (emerging market) crisis, that’s not going to be good for our Plan B,” said Kub.

Farm Credit Canada’s J.P. Gervais is watching how the lira crisis is affecting commercial trade.

Presently, with the crisis mostly remaining confined to Turkey, supply-and-demand fundamentals might not be too badly affected.

“I don’t think at this time that the impact will be too significant,” said Gervais.

But prices could be twitchy for a while, with U.S.-denominated futures contracts dealing with a higher greenback compared to most other currencies. As the U.S. dollar rises and investors shift assets into dollars away from emerging markets, U.S. crop prices will have trouble maintaining their values.

The situation is more complicated for Canadian farmers because the loonie is likely to weaken. That should mitigate some weakness in U.S. futures contracts because Canadian prices rise relative to U.S. prices, but Gervais said it won’t likely be a one-for-one compensation.

Gervais and Kub say they are watching to see if any bailouts are offered to stop the rout of the lira. Many expect the Turkish government to ask the International Monetary Fund for emergency help, although that may be too humiliating for its authoritarian leader, Recep Tayyip Erdogan, to accept.

Others wonder if countries like China or Qatar could step in to help.

Kub said an unusual element of this currency crisis is that the U.S. isn’t too likely to help because the administration of U.S. President Donald Trump is fighting with Turkey and helped spark the present crisis.

“In today’s political environment, we have a more contentious relationship,” said Kub.

“I think it increases the risk of this extending or lasting longer or spreading to other countries.”

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