CURRENCY CRASH


Market Insights October 6
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Market Thoughts

Are we entering a bear market or what? With all this recession talk what dangers loom just around the corner? Should Canadian grain farmers be concerned?

Yes. Yes, They should.

One very important factor that farmers must be aware of is the rate of change in which currency has changed. In a very short time period, the Canadian dollar has dropped from 78 cents down to 73 cents. This is huge and the ramifications will directly affect grain farmers. Not only that, but our competitors are also experiencing weakness in their own currency which adds to the complexity.

Why This Matters

On the export side of things, the destination price must always be competitive.

For example, Egypt will only pay $USD 400/mt for wheat delivered to Egypt. Now if the Australian currency dropped by 10% and Canadian dropped by 5% during the same time that means that Australia wheat is 5% cheaper than Canada on the currency exchange alone. (Assuming everything else is equal)

What this means is that because both the Euro and Australian dollar have decreased more than the Canadian dollar our grain is more expensive relative to our competitors. The only way to solve this is to widen out the Canadian basis so that Canadian wheat is competitive on the world market. This is why currency is so important.


Bulls and Bears

Canola

Sentiment: Neutral to slightly Bullish

Bullish: Smaller than expected crop

Bearish: Vegetable oil stocks are rebounding


Barley

Sentiment: Neutral to slightly Bearish

Bullish: Feedlots are aggressive buyers. Weak $CAD.

Bearish: Lack of export demand


Wheat

Sentiment: Slightly Bullish

Bullish: Global production will be smaller than expected

Bearish: Financial trauma and drama causing demand destruction


Quick Chart

Notice how the CAD has dropped the least compared to the AUS and EURO

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