US Dollar Weakness Provides Some Gunpowder for Grain Futures Price

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In southwestern Ontario the days are growing longer. Yes, I will never understand daylight savings time. I just know that twice year it’s very annoying. Even though today, I almost froze to death trying to do some maintenance work, these longer days tell me it won’t last forever. I can’t wait for the longest day on June 21st. Maybe by that time our grain markets will have a little bit better news.

 

The March 9th USDA report didn’t serve up much help for the markets. The USDA left the corn ending stocks unchanged at 1.837 billion bushels and they actually increased soybean-ending stocks to 460 million bushels. The only bullish nugget I could find was the USDA actually decreasing global ending stocks for both corn and soybeans. For a market that had been going sideways and down for the longest time, the March 9th report didn’t do anything to change that.

 

Since then we have actually had a little bit of strength in the grain market. November soybeans actually closed tonight at $9.08 a bushel up from $8.77 a bushel on March 2nd. Even the old crop corn has risen closing tonight at $3.68 from a low a few weeks ago at $3.54. So we’ve had a little bit of a bounce but it really has had nothing to do with all that grain disappearing. Part of the movement in grain prices has had everything to do with the US dollar weakening precipitously since March 10th. The US dollar index is down to 94.801 tonight versus the 98 level back on March 1st. With the weakness of the US dollar it was like the emergency brake was taken off the commodity car going down the road. Suddenly we were a lot freer to see those grain futures prices move.

 

I argue about this all the time. Its conventional wisdom in Canada when our Canadian dollar moves it is because of oil. I think there is some correlation but I really don’t buy into it. Our Canadian dollar is somewhat tied to commodities but I always have said its value is simply the inverse of the US dollar. As the US dollar goes up, generally the value the Canadian dollar goes down. As the American dollar goes down typically the Canadian dollar goes up. The Canadian dollar crossed the $.77 US mark today as it continues its meteoric rise from the $.68 level on January 20th. The US dollar has been the whole thing in my opinion.

 

It is difficult to totally explain why currencies move as they do. For instance, I have always been a proponent over the last couple of years that the US dollar will likely move higher. I say that because you look at the world and despite the machinations of some of our American friends, the US economy is doing pretty well compared to the rest of the world. It was expected in the market this week that US Federal Reserve chairman Janet Yellen would be announcing four different rate hikes in 2016. However, she cooled the market by intimating it would only be two. The US dollar tanked after those remarks. Commodities have benefited. Crude oil reached $40 a barrel! It was like Independence Day.

 

Of course, from a grain futures price perspective we need that US dollar to keep dropping to loosen up prices. It is unlikely, because the United States still has the biggest military and the richest economy and that’s not going dry up overnight. However, add the uneven times of an American election ahead, and it’s all-difficult to say.

 

Of course, we are waiting for the March 31st USDA report, when USDA gives us their anticipated 2016 crop acres. Last year, we had 85.1 million acres of soybeans and 88.9 million acres of corn in the United States. With the latest bump in prices, it may give the American farmer just a little bit more incentive to plant even more than 2015. That’s pretty hard to believe but as our days grow longer it looks more and more like a reality. It will certainly drive market action post March 31st.

 

So as we look ahead, the US dollar has provided a bit of gunpowder for some grain futures movement. The March 31st report looms as another major market mover. Add in a Black Swan and you have a whole new ball game. We’re not there yet, but these long days hold out so many possibilities.

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