Mind-Boggling: The Loonie, The Greenback and the USDA’s October Surprise
In the spirit of the American election, I’d like to say “I’m Joe the Farmer” and I’ve just about had it. It seems like I’ve heard it all crackle over my satellite radio, whether it’s “Joe the Plumber” or Tito the Builder or some other “ordinary voter”. I’ll be glad when November 5th finally gets here. I’m sure some of my DTN mates feel the same way. Some of their families who live in Iowa have been fielding political calls at home for two years now.
However, I feel for “Joe the Farmer”. Ok, enough of that. What’s interesting about our current state is which way we should turn now that it seems “its over.” What you say? What I’m musing about are our commodity markets. Has the end came? Have we reached the lows, never to go back there again? Or is the jittery nature of the markets here to stay at least until 2010 like I mused a few weeks ago?
It seems like things are changing. Part of the decline in prices has been buffered in Canada by some buoyant Canadian basis levels. Much of that has to do with a loonie drunk on it’s own success in 2007. The resultant stupor of the last few weeks sent it down into the 77 cent level only to rebound this past week with an unprecedented one day move up now showing at 82 cents US. For those of us who watched last November 7th as it hit $1.1009, it’s mind-boggling.
It’s happened partly because of the slump in commodities in general, but also because of the value of the US greenback. You might remember last year me talking about the record low US dollar acting like testosterone within the grain market. In my speaking tour last year I often referred to the low US dollar like it was “starting fluid” being injected into the grain market. The market was bullish always supported by a weak greenback, which made grain easier to buy in foreign currencies.
Now it’s the other way with the US greenback rising rapidly. I was a bit surprised by this, thinking that the US sub-prime problem would make investors very shy about investing in US treasury bills. However, I was wrong. When the big October 2008 meltdown came money flooded into US backed securities. Even after all the tumult, a US dollar is a US dollar, rock solid to the core.
The loonie might be a petro-currency, but its value is more about being the inverse of the value of the US greenback. So for now, its looks like “parity” was a flash in the pan, so maybe Canadian grain basis values will move to a semi-permanent positive platform for the rest of 2008 and a big part of 2009.
The loonie is one thing, but the big earthquake this past week, aside from those daily market tremors we’ve become accustomed to, was the USDA and their “revised” October crop numbers. As many of you know, I write the Market Trends corn commentary for the Ontario Corn Producers Association. USDA reports are very important when I produce that. So when the USDA came out and changed it mid stream instead of waiting until November, it was like all those conspiracy theorists had come home to roost.
Last Monday afternoon USDA announced they were going to issue a correction the next morning. You know the rest of the story. They cut the previous October number for soybeans by 1.1 million acres and 1 million acres for corn. They also cut soybean and corn export demand. Soybean export demand dropped from 1.05 bb to 1.02 bb. Corn export demand dropped to 1.95 bb from 2.0 bb. The excuse was there were mistakes in a couple of databases. However, to me it was like Mikey had stolen some marbles and Tommy didn’t know till later. Clearly, from my perspective there is something up here. Will the October USDA market prediction shenanigans turn into the November surprise come mid month?
That was brought home to me listening to Darin Newsom’s closing comments on the DTN video web cast this afternoon. He talked about the incredible soybean export numbers for last week in the US and how in the light of last week’s revised report, those numbers get a new spin. In other words, something is not quite adding up here and maybe in future weeks the market will decide just what that is. So add me to the USDA conspiracy theorists at least for October and November.
It all adds to the uncertainty of these times we find ourselves in. The one redemptive factor is some of this is bringing back new life to Canadian agriculture. A “low” loonie tends to do that by default. A bin busting Ontario corn crop helps too. Getting here hasn’t been for the feint of heart. Looking ahead though, maybe the worst is over.