Poised to Plant: Weather and US/Canadian Dollar Interaction Continues to Challenge

Poised to PlantI walked over my fields in late April, still wet from two week of rain and cold.  There is something soothing for me walking those fields.  However, my heavy clay soils don’t give up very easily.  I only have to take a few steps on those fields and I know it’s going to take time.  A year ago I was almost done planting corn April 23rd.  2011 is surely going to be different from the benign crop year of 2010.

Of course the markets have been looking at these conditions too.  Over the last few weeks new crop corn has broke through record levels as planters have been stopped, some before they even got going.  There may be a couple thousand acres of corn planted in Ontario as of April 25th, but it will be a while before it gets out of the ground.  Cold, wet weather has been the order of the day.  Market watchers can talk about all the noncommercial interests and fundamentals all they want.  Weather over the next month will surely drive market action.

We have certainly seen that in the wheat market.  Drought in the American wheat belt has further deteriorated the crop that looked pretty tough to begin with and it has spiked wheat markets over the last week.  At the same time in Ontario, the wheat crop looks pretty good, but applying nitrogen to it has been a challenge.  It might be one of those years when we go straight into summer.

I’m itchy to get going.  I have contracted grain at prices I have never seen before and would love the opportunity to get that crop in the ground.  I have often said that working to get ready to plant is so much harder than planting itself.  I like it when I start planting because driving a planter through the field is so much more relaxing than getting ready to plant.

It could be complicated this year by the proverbial tipping point of commodity prices. These prices have been boosted by tight fundamentals, but also from speculative noncommercial interests.  With spring weather having turned fickle, these noncommercial interests will surely make for a violently volatile planting season.

Interestingly enough, our commodity complex has been jilted over the last few days from the anemic performance of the US dollar.  I watch this every day and even though I realize quantitative easing was weakening the US greenback, when I see a drop, I’m always taken aback.  The US dollar is still the world’s default currency, so seeing it go down to 73.935 today versus 79.295 on the US Dollar Index last February always sends me.  It effectively has made commodities cheaper, like small amounts of testosterone constantly fed into the market making prices go higher.

Some would say that the weaker US dollar is just the culmination of dollar debasement.  What this means is that the US federal government along with the US Federal Reserve have actively tried to cheapen the US dollar, to boost exports, create employment while at the same time paying back the American deficit with cheaper dollars.  That’s almost exactly what it looks like now, for farmers with commodities for sale; it’s like being at the right place at the right time.

Not so if you are a Canadian producer looking at Canadian cash grain values.  As I have said 1000 times, I don’t drink the Canadian dollar, crude oil Kool-Aid.  In my mind the value of the Canadian dollar is always an inverse to the US dollar.  So as the US dollar goes down, the loonie goes up and actually reached $1.0553 Thursday afternoon.  Cash grain basis declined across Canada on that news and it would continue to decline if the US dollar continues to weaken.  There is just no scenario in my mind, which would see the US dollar and Canadian dollar weakened in lockstep.

This all adds up to some very volatile markets ahead.  To add insult to injury, I fully expect the Bank of Canada to raise interest rates by June in an attempt to control inflation.  That will certainly boost the loonie, which will surely challenge our agricultural marketing plans further. The challenge in 2011 is to be successful despite it all.  That will continue when planters start rolling in earnest.  We need the weather.  Like all years, we’ll eventually get it.  A little patience may be in order.