The News & What it Means – Canadian Interest Rates Hold Steady & US Midwest Dryness Increasing

 

By John DePutter and Dave Milne – March 6, 2017

 

The news: No change for Canada’s Bank Rate

Citing continued uncertainty and concern over the state of the domestic economy, last week the Bank of Canada maintained its overnight rate at 0.5%, where it has been since summer, 2015.

“While there have been recent gains in employment, subdued growth in wages and hours worked continue to reflect persistent economic slack in Canada, in contrast to the US,” the Bank said.

     —From multi-media sources.

 

 

What it means:

Farmers won’t get a break with lower borrowing costs in 2017, or at least it won’t be by much if they do.

Then again, you don’t have to worry about big increases immediately either.

Although a steady rate from the BoC means you shouldn’t expect huge interest rate shifts right away, don’t be complacent. Remember the BoC only sets the overnight rate – the short-term rate. Longer-term rates have more to do with the marketplace. Bond market moves can have a lot to say about borrowing rates for longer-term money such as mortgages. Those rates can go up or down, even when the central bank rate stays steady.

For its part, the Canadian bond market saw yields move higher after the BoC announcement. However, this had more to do with what’s happening in the US bonds market these days than anything the BoC did (or didn’t) do.

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The news: US Midwest Dryness Increasing

Spring seeding is still a long way off, but dryness is increasing across parts of the American Midwest – the prime soybean and corn production region.

According to the latest US drought monitor, about 26% of the Midwest is now considered abnormally dry, up from 21.5% a week earlier and well above less than 1% at this time last year. An estimated 9.3% of the Midwest was in moderate drought, compared to 7.2% the previous week and 0% last year.

The bulk of the moderate drought is impacting Missouri, with a large portion of southern Illinois considered abnormally dry.

     –News story on Syngenta Farm web site, posted by DePutter news writers.

 

What it means:

It could mean A LOT for corn prices.

Suppose the dry area spreads and lasts all the way through June and into July. This could cause yield reductions. Corn needs good weather during those two months. Such a scenario would mean higher prices.

On the other hand, suppose the dry area allows for a fast, early planting and then timely rains come. Uh oh, that would mean lower prices.

Key point: People can make all the predictions they want this time of year, but really US weather calls the shots.

Acreage is important but whether the US farmer seeds 90 million corn acres – as recently projected by the USDA – or a million acres more or less than that, is less important than weather and yield.

A monster 175 bu/acre yield like last year, and the US will have lots of corn to use at home and export, and ending stocks will stay piled high. That could lead to sharply lower prices, especially in late summer or at harvest, when the crop is seen to be secure.

Knock the yield down to 170 bu/acre, and ending stocks would probably stay just barely steady or possibly decline. No major upswing or downswing.

Cut it to 165 bu/acre, far below last year but not a bad yield by the standards of the past five years, and you’ve got the potential for a deep enough production decline to send prices higher.

Starting in May, the market reacts to forecasts, not reality. Sometimes the market will overdo the upside, sometimes the downside, before the weather has actually proved to have an impact.

Point is, the weather will soon become the most important factor for the corn market. As the market moves through spring and into summer, look for weather-related ups and downs.

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