The News & What it Means – Higher Interest Rates and a Stronger Loonie & Harvest Pressure Ahead for Corn

By John DePutter & Dave Milne – October 11, 2017

 

The news:

“The International Monetary Fund has raised its estimate for Canada’s economic growth rate for this year and 2018, putting it at or near the top of the heap among advanced economies.”

– Financial Post, Oct. 10, 2017

 

What it means:

Get ready for the possibility of higher interest rates and a stronger loonie.

 

The Bank of Canada has already raised interest rates twice this year, including a ¼-point increase in September that pushed the key overnight lending rate to 1%.

 

Meanwhile, the Canadian dollar – although it has sagged more recently – has gained about 7% this year.

 

If the IMF is correct about Canada’s economic prowess for this year and into 2018, there’s a good chance farmer borrowing costs will be on the move higher again, eventually.

 

For the record, the IMF has pegged Canadian economic growth for 2017 at 3%, up from its July estimate and topping this year’s 2.2% growth forecast for the U.S. Although Canadian economic growth is expected to slow to 2.1% in 2018, that’s still plenty strong.

 

Admittedly, a strong Canadian economy is in everyone’s best interest; after all it puts more money into the pockets of consumers to buy the things that farmers are selling.

 

But as with most things, there’s a flip side.

 

If Canadian interest rates rise faster than comparable US interest rates, it could result in a stronger Canadian dollar, which could pressure the basis and eat into producer returns for crops and livestock that are sold on the international market in U.S. dollars.

 

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The news:

The US corn harvest was 22% complete as of Sunday, up only 5 points on the week and 15 points behind the average. Last year at the same time, one-third of the American crop was in the bin.

– USDA, Oct 10, 2017.

 

What it means:

 

There is still a huge volume of corn unharvested – hinting that the full weight of harvest pressure on the corn market has not yet been felt.

 

That’s not to say corn prices will slam heavily lower in the next few weeks as the brunt of the harvest hits the scales. But what it does suggest is that it’s premature to say the harvest-time lows for corn prices are firmly in place. There’s a good chance more harvest-related selling keeps a lid on futures and cash prices the rest of this month and maybe longer.

 

That said, with harvest progress as slow as it is, there’s also a possibility a fair chunk of the US corn crop doesn’t make it to the bin before winter sets in.

 

That’s something to watch for – later on this fall. If large acreages of corn are still sitting unharvested in late October, and if at that time the weather forecasts carry a lot of snow and rain, traders could get spooked. And we could see a Hallowe’en rally.

 

Action plan:

Ag-Alert tracks harvest progress and other market factors regularly, aiming to help corn users book corn feed needs ahead of opportune times of pressure, such as during the brunt of harvest pressure.

 

We also aim to help corn growers peg their sales to rallies, such as during post-harvest recovery rallies. There could be some important opportunities ahead!

 

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