U.S. dollar impacts grain prices
This week was a clear economic lesson for those who wanted to understand the impact of currency values, as a weaker U.S. dollar led to a spike in agricultural commodity prices. What happened?
At the World Economic Forum in Davos, Switzerland, U.S. Treasury Secretary Steven Mnuchin said on Wednesday, "Obviously a weaker dollar is good for us as it relates to trade and opportunities." The value of the dollar has been falling pretty steadily for over a year, but this one comment from Mnuchin was enough to push values down big. And agricultural markets responded quickly by bouncing higher.
The reason is that for all outside buyers of U.S. commodities, a weaker dollar makes the overall price of any market cheaper as the dollars to buy that commodity are cheaper. What was seen in the wheat market perfectly captured the correction, as buyers immediately jumped in and rallied the market to about a dime higher.
Going forward, the potential for ongoing drops in the value of the U.S. dollar could provide some bullish force to agricultural commodity prices. This was especially noticeable as winter markets have less fundamental weather and growing news off of which to trade.
Wheat markets have been firmer this week. Prices were rallied on the drop in the value of the U.S. dollar. Additionally, weather has not improved for the dry Plains in the U.S., which is becoming a concern. Note that spring rains could still come and alleviate the fear of crop damage, but the more time that passes without a significant weather event, the more support will be lent to prices.
Durum prices were unchanged from a week ago in Minneapolis. The market remains quiet through the winter. Informa Economics pegged U.S. durum planted area at 2.25 million acres, compared to 2.31 million acres last year.
The canola market narrative has not changed much in the last few weeks. On the bullish side, Argentina's weather remains largely unfavorable for the soybean crop, and as a top exporter of soybean oil and meal, this lends support to other fats markets. On the bearish side, supplies of canola are comfortable in Canada and the European Union, and crush demand was off lately. Until planting begins and weather becomes more of a factor, look for South American market dynamics to drive the price of canola.
Peas and lentils
The Canadian Grains Commission reported a slowdown of lentils exported in December. Total year-to-date exports are just 114,700 metric tons compared to 510,000 metric tons a year ago. The major slowdown is due to reduced business with India due to their import duties that support Indian growers. Pea exports reported were also lower in December, totaling 65,200 metric tons. However, increased business with China helped boost shipments. In India, a new record planting for the rabi (winter) pulse crops was hit as farmers sowed 16.311 million hectares, compared to last year's 15.576 million hectares.
The continuation of slow mustard seed exports was confirmed by the CGC. Just 400 metric tons of bulk mustard seed was reported from Jan. 8-14. Total season-to-date exports reached 9,300 metric tons compared to last year's 9,700 metric tons.
U.S. reported total barley sales for the crop year so far at 124 million bushels. This is roughly in line with last year's pace.