Monday Morning Markets

[charliep]

Just a note that everything (except wheat small minuses on the front end) a little higher this morning. Oil at $85/barrel (nearby) so anything with an energy component getting some support. The loonie close to a $1.03 US bucks. Will it go higher?

[TOM4CWB]

Charlie,

Why wouldn't the CDN$ go higher?

What logical reason is there for it not to go to $1.25?

[Kodiak]

It looks to me like large funds are unwinding their short corn/long wheat spreads.

Question is - how long until that's done and the tight world wheat stock situation reasserts itself as a fundamental.

[charliep]

tom4cwb and kodiak

Always curious what a person does with information in decision making. Seems like you are talking about different factors that will pull Canadian wheat prices/payments opposite directions. Canadian loonie that moves higher relative to world currencies and higher wheat prices.

What are the strategies coming out of this?

[TOM4CWB]

Dear Charlie,

I see this from Kevin Hursh;

Wells Fargo economist says lock in prices before they drop
Not all agricultural economists have a bullish view of grain prices. Michael Swanson is in the economics department of Wells Fargo & Co. in the U.S. Swanson does a good job of explaining what’s happening in the U.S. ethanol industry and why that’s resulting in less corn consumption than anticipated. There are really two markets for ethanol. One is as oxygenate to improve the quality of gasoline. This is the mandated use of ethanol and for this market, there’s a high value. Any additional ethanol has to replace gasoline in the marketplace, and for this market ethanol is typically discounted relative to the price of gasoline. As ethanol production has skyrocketed in the U.S., more and more ethanol has been pushed into the lower value use. With reduced profitability, the expansion of ethanol plants is slowing and less corn than anticipated is being consumed. Some analysts crunch the numbers and say corn production will be hard pressed to keep up with the overall demand. Michael Swanson’s analysis is that U.S. farmers only need to plant 82 million acres of corn next year to meet next year’s usage. This would mean a dramatic acreage shift back into wheat and soybeans. Thus, according to Swanson, all three commodities are likely to see prices slip. Swanson’s advice is to lock in prices for old crop and new crop production before prices fall. Swanson’s analysis posted on the Wells Fargo website is an interesting counterbalance to the optimism that’s now prevalent among grain market analysts. I’m Kevin Hursh.

Is this good advice?

1.) As the Loonie rises... our grain is worth less.

2.) U.S. Corn has already shown its tendacy to revert back to more traditional prices... when the value of the US$ is converted back to the strong 2002 US$ prices.

Here are the values compared to 5 years ago:

5 year change - (versus $1 U.S. dollar)
Argentina -14.59%
Australia -39.03%
Brazil -55.44%
Canada -38.32%
Egypt 19.70%
EU -30.39%
Japan -5.39%

When Brazil buys US wheat for instance... it is $8.50 times .55 = $4.67/bu. Bulk ocean freight takes a chunk back... but there is a real currency effect... it must be considered...

Again... are we not going to a $1.25CDN/US in short order?

Or are the Conservatives going to lose... which would push us into recession and tank our CDN$?

What is the likelyhood of this?

3.) U.S. Corn is the arbitage factor for CDN domestic feed users... as they gear up to switch to US Corn... our domestic feed prices WILL be pulled down.

[cottonpicken]

What do the conservatives have to do with the economy?

[parsley]

You have confidence in the Green Party running the country's finances?

Or the NDP, with Svend head of the Bank of Canada?


Parsley

[TOM4CWB]

CottonPicken,

Could you implement Koyoto and retain a good economic standard for Canada... Cold, market Distant, and resource rich?

To do what the ND/Green/Bloc say they want... it would shut western Canada down.

[cottonpicken]

Well according to all that logic.

Is canada a prosperous country?

Who has lead canada for 79 of the past 100 years?

What does the bank of canada have to do with the government of canada?

[charliep]

Just noting crude seems destined for $90/barrel. Challenging impact on the world economy driven political instability (newest being Turkey at the Iraqi border).

[charliep]

Note the discussion about the governments role in monitoring the economy. Would note the difference between monetary and fiscal policy. The federal government has a role in both. Googled and lots of information. The below applies to US but provides the basics of Canada.

http://www.socialstudieshelp.com/Eco_Mon_and_Fiscal.htm

[parsley]

cotton

I was just highlighting people who could be serving in key posts,perhaps ones that would allow you to rest easy at nights?