Currency weakness supportive for Canadian-grown commodities

Wheat futures drew some strength from demand for shelf-stable goods

It’s a fluid situation’ was the phrase of the week as the COVID-19 coronavirus pandemic infected everything it touched. The grains and oilseeds were not immune to the large swings seen in the global financial markets, but did manage to hold up reasonably well, all things considered.

Social isolation, quarantines, travel restrictions and general worldwide uncertainty over the situation saw ICE Futures canola contracts fall to contract lows on March 16, as the unprecedented nature of the pandemic led to widespread selling. The Dow Jones Industrial Average and the TSX both dropped sharply, while crude oil has lost about US$35 per barrel since the start of the year.

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However, the mantra that ‘people still need to eat’ lessened the impact on agricultural commodities. Wheat futures found the most strength off of that sentiment, amid an uptick in demand for flour, pasta and other shelf-stable goods.

Weakness in the Canadian dollar, as the Bank of Canada slashed interest rates and energy markets tanked, was also supportive for both Canadian cash wheat bids and the canola futures.

The loonie fell to levels not seen in 17 years, trading around 68.5 U.S. cents at one point before moving back toward 70 U.S. cents by Friday.

That move in the currency helped crush margins improve by about $20-$30 per tonne. That weak currency also makes Canadian commodities relatively cheaper for global buyers.

However, the question now is whether that strength on paper will translate into anything tangible, as global trade is likely to see a serious slowdown due to the coronavirus.

That question may take weeks, months or even years to be fully answered, but in the meantime the world keeps spinning and the calendar marked the first day of spring.

Canadian farmers will now head into planting season — and, in many cases, resume harvest operations — facing a rather uncertain future.

Early expectations from Agriculture and Agri-Food Canada call for a slight decline in seeded canola area on the year and an increase in wheat. In the U.S., pre-coronavirus calls were for sizable increases in both soybean and corn area. However, corn may not be looking so attractive anymore, due to its link to ethanol production.

The U.S. Department of Agriculture is set to release its prospective plantings report on March 31, which may shed some light on the North American 2020-21 crop.

While traditional supply/demand fundamentals should remain a background feature in the markets, the volatility of the COVID-19 situation will take precedence — keeping the markets in a much more fluid state than usual for the foreseeable future.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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