Grain markets this morning are mainly higher thanks to one thing: the US Dollar. The key question now is “how low can it go?”
“Passion is what gets you through the hardest times that might otherwise make strong men weak, or make you give up.” – Neil DeGrasse-Tyson (US astrophysicist)
Grain markets this morning are mainly higher this morning thanks to one thing: the U.S. Dollar.
As noted by Garrett in his daily afternoon Grain Markets Today column, winter wheat prices popped yesterday on the news that the US government is welcoming a weaker US. Dollar.
A weaker US Dollar increases the exportability of its agricultural products, including wheat. Obviously, this allows the Canadian Dollar to appreciate, but the Loonie is sticking a bit above 81 cents USD, which will hopefully minimize the impact on basis levels in Canada (and obviously, Canadian grain prices).
Short-covering also played a role in wheat prices and corn prices climbing higher yesterday. Soybean prices at the Chicago Board of Trade climbed for their eighth straight trading session, the longest winning streak since June.
This morning we’ve updated our sales positions for a few crops in GrainCents – if you’re a subscriber, you would’ve gotten an email notification. You can also login and review your GrainCents dashboard to see our timestamped calls.
Lower Soybean Production Estimates in Argentina
Domestic grain values – and namely soybean prices – are heading lower thanks to volatility in the Brazilian Real, the country’s currency. The reason for the appreciation is the ongoing corruption saga/trial of former Brazilian President, Luis “Lula” da Silva. The market is hoping that a current verdict is upheld and that da Silva can’t run in the current election.
AgResource lowered its Argentine corn output estimate to 36.5 million tonnes and their soybean production forecast to 52 million tonnes. With each passing week, there seem to be more analysts pushing their soybean production estimate for the Argentine 2017/18 crop below 50 million tonnes.
For perspective, the USDA dropped their estimate of the Argentine soybean crop to 56 million tonnes in the January WASDE report, down 1 million from the previous month. The USDA’s corn production forecast for Argentina remains at 42 million tonnes.
Interestingly enough, yesterday the USDA’s attaché in Argentina dropped its corn estimate to 40 million tonnes, citing the lack of rain and hot temperatures.  It also dropped the harvested area by about 250,000 acres.
The US Dollar and Free Trade Deals
Yesterday, the US Dollar dropped to its lowest point since 2014.
Since US President Donald Trump took office a year ago, the Greenback is down 10%. The reason for major decline yesterday was US Treasury Secretary Steven Munchin telling the World Economic Forum in Davos, Switzerland that the value of the US Dollar against other currencies was “not a concern of ours at all.” 
This is a significant change in US policy as for the past few decades; US officials had routinely framed a stronger US Dollar as the sign of a strong economy. But we all know that US President Trump and company aren’t interested in preserving the status quo.
So, what does this mean?
A strong US dollar tends to associate with a strong US economy. Using history as a measuring stick, the times that the Greenback weakened noticeably – namely 1970s and early 2000s – these periods were accompanied by higher interest rates and rising inflation.
The upside here is that this is potentially a boost for exports, namely wheat, and corn which have seen more competition from rising global competitors in the past few years.
However, the downside is that it will make importing foreign goods more expensive. It can easily be argued that a lot of these foreign goods that make it onto US soil are purchased quite often by lower-income consumers, many of which are in Trump’s demographic.
Main US Dollar Policy Takeaways
Ultimately, the weaker US Dollar policy comes as the American government is renegotiating or backing out of feed trade deals, and is imposing tariffs on Chinese and South Korean goods. 
For the recently resurrected Trans-Pacific Partnership deal that we talked about in yesterday’s Breakfast Brief, the TPP deal creates opportunities for Canadian spring wheat exports, namely into Japan as discussed in detail in GrainCents last week.
On the tariff front, already, South Korea has responded by launching a WTO dispute over these new tariffs.  The business community is also responding, as LG Electronics said they would raise prices on most of its washing machines in the United States. 
Let’s keep in mind that the US Dollar didn’t tank 5% or 10% yesterday. Sure, it’s down 4.3% in the past 30 days, and the Canadian Loonie has rallied 3.2%, but that’s not necessarily outside the lines of reasonable. Digging deeper, in the past six months, the US Dollar is down 5.3% against a basket of international currencies, while the Canadian Loonie is up 1.5%.
Currencies are one of those items that we love to talk about in the trading community as extremely volatile. The fact is that although the moves are slow, they are incremental.
What I’m still asking myself this morning is at what point will the US Trump Administration say, “that’s low enough?”
At 7:55 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2456 CAD, $1 CAD = $0.8028 USD)
Mar Corn: +0.8¢ (+0.2%) to $3.573 USD or $4.409 CAD
Mar Soybeans: +4.8¢ (+0.5%) to $9.97 USD or $12.304 CAD
Mar Soybean Meal (per short ton): +$2.40 (+0.7%) to $344.40 USD or $425.03 CAD
Mar Soybean Oil (cents per lbs): +0.04¢ (+0.1%) to 32.72¢ USD or 40.38¢ CAD
Mar Oats: +3¢ (+1.1%) to $2.785 USD or $3.437 CAD
Mar Wheat (Chicago): +4.3¢ (+1%) to $4.373 USD or $5.396 CAD
Mar Wheat (Kansas City): +5.3¢ (+1.2%) to $4.383 USD or $5.408 CAD
Mar Wheat (Minneapolis): +5.5¢ (+0.9%) to $6.135 USD or $7.571 CAD
Mar Canola: -0.2¢/bu / -$0.10/MT (-0.02%) to $11.224/bu / $494.90/MT CAD or $9.095/bu / $401.02/MT USD
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