Canada Markets

CAD Rally Effect on Spring Wheat Bids

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Over the May 22-through-June 11 period, the July MGEX spring wheat contract barely moved in U.S. dollars, as seen by the first bar, while losing $7.21/metric ton in Canadian dollars, or the second bar. The remaining blue bars show the loss in cash prices across nine prairie regions, while the brown bars represent the change in basis reported over this period. (DTN graphic by Cliff Jamieson)

After trading in a triangle pattern for a period of 10 weeks, with $0.72 CAD/USD acting as resistance, the Canadian dollar broke higher in the week of May 26. From the May 22 close, to the spot dollar's strongest trade against the United States dollar as of June 8, the Canadian dollar strengthened 4.7% or 337 basis points, which saw a move above the 67% retracement of the move from the Dec. 30 high on the weekly chart to the March 16 low.

Weakness since June 8 has seen pressure on the loonie, with the exchange rate with the USD slipping back below the 67% retracement and the 61.8% retracement level of the move from the December high to March low. As well, the move higher also resulted in a move above the spot dollar's 200-day moving average and held there for four days from June 5-10, the first close above the 200-day since Jan. 30.

The attached chart highlights the effects of this sudden move on No. 1 CWRS 13.5% protein cash bids across the Prairies from May 22 through June 11, based on data.

Over the almost two-week period from May 22 to June 11, the July MGEX spring wheat contract moved from a close of $5.13/bushel USD, gained strength to a high of $5.29 3/4/bushel on June 4, and then faced pressure -- closing at $5.13 1/4 per bushel on June 11. The first bar on the chart is not visible but shows a 1/4 cent USD gain over this period or a $0.09/metric ton USD gain.

The second bar represents the change in the Canadian dollar price for this future, based on the movements of the spot dollar. The Canadian dollar loss over this period is $7.21/mt, despite the small drop in futures.

The remaining blue bars represent the change in the cash price reported by across the nine regions of the Prairies reported. Losses over the period range from $4.92/mt in northeast Saskatchewan to a high of $9.96/mt in eastern Manitoba.

The brown bars represent the change in basis across the nine regions. Basis narrowed or strengthened in four of the nine regions, helping minimize the losses over this period, with the greatest strength seen in northeast Saskatchewan of $2.29/mt. Basis weakened in five of the nine regions, with the greatest weakness seen in the eastern Prairies. This basis weakened $2.72/mt in western Manitoba and $2.74/mt in eastern Manitoba, contributing to an overall cash loss which is nearing $10/mt over the two weeks.

Just as the Canadian dollar struggled with resistance of $0.72 CAD/USD over a 10-week period, its sudden move above $0.74 CAD/USD to a high of $0.74826 CAD/USD this week may be short-lived. The spot loonie closed 99 basis points lower at $0.73456 CAD/USD over the course of this week. Potential support lies at the 20-day moving average at $0.7308, while the 33% retracement of the move from the March low to June high is found at $.7274 CAD/USD.


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