Cash grain prices in 2014 have firmed for producers, but that improvement in prices has had very little to do with the range bound futures market, and was largely the result of the decline in the Canadian dollar. As the dollar starts to retrace its recent downturn, grain producers might want to seize the opportunity to make some sales while the dollar is still low.
Most of the fluctuations in the value of the Canadian dollar have very little to do with the intrinsic strength of the Canadian currency. Because we value our dollar relative to the U.S. currency, issues within the American economy translate directly into the Canadian / US exchange rate. For example, in September and October of 2013 as the U.S. government hit their debt ceiling, and the Senate and Congress gridlocked over the policy requirement for a solution, the Canadian dollar rose to US$0.97. Having put that situation, at least temporarily, behind them through November, December, and January, we saw a consistent decline in the Canadian dollar do to US$0.89. This was not the result of anything particular in the Canadian economy, but rather simply a strengthening of the U.S. dollar as they had their affairs in order.
The marketing challenge facing Canadians today is that our neighbors to the south have once again found themselves in the early stages of a renewed debt ceiling debate. The Republicans in Congress are already talking about trying to include amendments to health care in any legislative solution to the debt ceiling, and the Democrats are vocally opposed to the bundling of legislation on the subject. If we are on the cusp of a gridlock like we experienced last fall, are we also about to experience similar exchange rates? Although we would like to imagine that American legislators aren’t stupid enough to repeat the same fiasco every 6 months, it’s not beyond the realm of what is possible.
At today’s CBOT futures levels, for every cent that our dollar moves, corn basis moves $0.05 and the soybean basis moves $0.14. While those are not enormous price swings in the value of our crops, a 5-cent retracement in the Canadian dollar, would certainly erode the storage gains made in our crops this winter. For some time we’ve been saying that a reversal in the strength of the Canadian dollar will be the signal to make the next round of grain sales. The reversal appears to be upon us now.