What have we to look forward to in 2017? There are a lot of events happening globally that might impact the farm business here on the Prairies. Oil production is being reined in, the U.S. dollar continues to maintain its strength against the loonie, and there is the always interesting debate over crop supply and demand. Not to mention weather-related market moves as crops in other countries move through their growing season.
The Federal Reserve just raised the interest rate in the U.S. 0.25 percent. This wasn’t a surprise – the hike was well anticipated. U.S. unemployment has dropped to under five percent and the economy seems to be going from strength to strength. Canada’s rate remains at 0.5 percent for now. While Canada’s economy is very closely tied to the U.S. economy, it’s not looking as positive just yet.
For growers, the biggest impact this interest rate hike will have will be on the Canadian dollar. It’s going to exert more pressure on the exchange rate. “With the likelihood of more U.S. interest rate increases coming in 2017, we’re going to see continuing pressure on our dollar,” says Brennan Turner, president and CEO of FarmLead.com, North America’s Grain Marketplace.“This might potentially help our exports, but with grain production at its current levels globally, buyers have a lot of choice when it comes to point of origin. Additionally, it appears as if the market is going to see some records.”
Turner sees wheat trading essentially sideways for the next three to six months. There will be some premiums for quality in wheat, but essentially with U.K., Russian, U.S., Canadian, Australian, and South American wheat in abundance, any rallies will be capped as buyers have a plethora of origins to choose from. “It’s a similar story with durum,” says Turner. “The U.S. durum crop is one of the biggest and best in recent memory and the French have a good crop too.”
“I’m more bearish on soybeans,” he says. “We’ve seen a record crop in the U.S. and in South America. This is going to weigh heavily on oilseed complex here. However, canola might be a bright spot.”
Turner expects canola prices to remain strong for good quality. There have been concerns about the canola crop quality generally. A lot of canola was harvested tough and went into storage in poor condition. It’s now heating and in some cases, bins are literally going up in smoke. Additionally, there are concerns about dryness in South America. “Premiums in the canola market now are driven by speculation,” says Turner. “Concerns over quality and production elsewhere are being seen in the price growers can get today. Where that’s most noticeable is in the relatively wide spreads between old crop and new crop.”
Turner advises growers that this is a great opportunity to lock in some pricing on any unpriced canola left in the bin.
Finally, a new U.S. President appears to be on a “spend to grow” path that will increase inflation, increase prices, drive up the U.S. dollar and, in so doing, drive the economy. This will keep their dollar strong and the Canadian loonie in the US$0.70 to US$0.75 range. That together with their interest rate policy from the Federal Reserve and the price of oil will be big drivers of the global economy in 2017.