The Rural Voice, 1989-01, Page 14O
THE NEW CALENDAR
What's Ahead for Farm Markets?
A new series by commodity brokers at Nesbitt Thomson Deacon Inc.
nce more we get the chance to tear another page
off the calendar and, lo and behold, 1989. There
is every chance that the next 12 months will be as
eventful as the previous dozen and, one hopes, more
prosperous.
What is it we remember best about 1988? Certainly on
the political front we saw many new faces and the return of
some old ones. We were fortunate enough to have elections
on two different levels. These past few weeks make us
• yearn for a provincial feud just to dispense with these post-
election blues.
On the federal front, the issue that guaranteed Mulroney
a few more years at 24 Sussex Drive was free trade. The
election results showed that Atlantic Canada was the least
happy with the deal, while Quebec and Ontario showed
support. With the further exception of a few pockets in the
West, it seems the deal has been accepted by Canadians.
In the immediate term, the most affected item in the
commodity market has been the Canadian dollar. Three
weeks prior to the election, it seemed Mulroney was a shoo-
in. Then came the eventful debates where John Turner
tugged at the heart -strings of Canadians and the momentum
seemed to swing in his favour.
We saw grassroots evidence in the days following the
debates when the Canadian dollar plummeted from 83 1/2
cents to 80 1/2 cents in barely a week: sure enough, Turner
seemed to be throwing a wrench into this trade deal.
The problem he then faced was what to do next. He
perhaps peaked too early and ordinary Canadians (sorry Ed)
had a chance to think and many decided that perhaps Turner
was opposing the deal because just maybe he'd have
difficulty getting elected if he went along with Mulroney.
F
ollowing the election, the dollar retraced its recent
highs and rose to levels not seen since December
of 1981. The ramifications of these levels are
great. Those heading to Florida for a few months will be
able to take advantage of the stronger dollar.
Unfortunately, those having U.S. receivables are not
quite as pleased. Producers of agricultural commodities in
Canada are directly affected by U.S. agricultural prices and
the dollar exchange rate. Any increase in the value of the
Canadian dollar means a net smaller return to the producer.
Similarly, a manufacturer who sells south of the border is
having his profit margins greatly reduced if he's not
protected.
Without professing to see too far into the future, we've
been asked where we feel the Canadian dollar can go. So,
here is our peerless prognostication.
T
here should be a sell-off in the dollar to the 81 1/2
to 82 1/2 level. The reasoning behind this is that
it reached its high levels on free trade news and
speculation about the deal. Now we need new information
to keep it there. We don't think that this is forthcoming and
therefore the dollar should drift slowly downward. The
longer-term outlook is to see it change direction again and
resume a steady climb to the 86 to 87 cent level.
How can the grains repeat last year's action? In January
and February, we looked at corn futures trading at $2.20 per
bushel in July and gave ourselves a shake for even thinking
about planting another crop. With corn futures trading at
$3.60 per bushel, we found ourselves worrying whether we
would have a rrop to sell at these unexpected high prices.
Then, when futures fell back to $2.60 per bushel, we still
hesitated to accept $4.00 on the local market because it had
been higher a month earlier and it just had to go higher
again, if for no other reason than that we missed it the first
time.
ow that we know what happened and precisely
what we should have done and when, let's take a
look at the U.S. corn situation, because what
happcns there happens here.
At this time of year, the crop is in the bin, so weather is
of no concern. What the grain trade concentrates on from
now until April is the U.S. corn carryover stocks estimates
as of crop year-end, which is October 1. The USDA
currently estimates that carryout stocks on October 1989
from the 1988 crop will approximate 1.5 billion bushels
versus 4 billion in the past year or so.
One might think that corn should be sharply higher than
it is now when you compare the amount of the reduction
over a one-year period. But to put the situation in better
perspective we must look at the mid -1970 to mid -1980
carryout stocks, which ranged from a high of 2 billion
bushels to a low end of 800 million bushels.
In view of the $1.00 per hu\hcl retracement from the
summer highs and 40 cents per bushel above the pre -
drought lows, the reduction of stocks from burdensome
levels of a year ago, ample storage capacity, and the lower
priced U.S. dollar vs. European currencies, we should
12 THE RURAL VOICE