Strong dollar a bearish signal to wheat, soybeans

by Laura Lloyd
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KANSAS CITY — While the value of the dollar eased from four-year highs against the Euro in early trading Oct. 6, the outlook for continued gains for the greenback remained intact even on the heels of a recent climb to 12-week highs.

This reflected the fact the U.S. economy was expanding faster than the E.U. economy, and in the next few months, interest rates were more likely to be raised in the United States than in Europe, attracting more foreign capital and continuing to keep upward pressure on the dollar. Geopolitical tensions also favored a “flight to quality” that aids the U.S. currency.

Commodities, in general, are likely to move lower as a result of a strong dollar, with wheat and soybeans among the most affected in the agricultural sector, said Paul Meyers, chief agricultural economist, Foresight Commodity Services.

“Exports account for 40% to 45% of total usage for wheat,” he said. “Exports account for 47% of total usage for soybeans. With corn, exports represent only 13% of total usage.”

Despite the price declines experienced in recent weeks in grain and oilseed markets on expected abundant supplies, the strength of the dollar relative to other currencies such as the Euro, the Yen or the Yuan makes U.S. supplies less of a bargain to overseas buyers than would be the case if the dollar were weaker.

“We are still selling wheat, but, from a relatively transparent market such as Egypt, you can tell the U.S. hasn’t sold but a small amount” in recent weeks, Mr. Meyers said, noting that Egypt recently bought wheat from France.

He also noted some customers for U.S. agricultural commodities appeared to be less price sensitive than others, mitigating the impact of a strong dollar. He cited China, which imported about 27 million tonnes of U.S. soybeans in 2013-14 “almost irrespective of the dollar impact.”

But some experts were predicting China may cut back on its soybean imports from the U.S. to about 23 million tonnes in the 2014-15 crop year that began Sept. 1 because of weaker crush margins and tepid overall growth in the Chinese economy.
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