Canada Markets

Currency trade and economic policy changes across major grain exporters have the potential to alter trade patterns and bears watching. Here are various situations that bears watching.

After two days of weakness against the USD, the euro gained strength against the United States dollar on Nov. 23 on news that included better-than-expected PMI data from Germany, signaling the potential for a less-severe contraction in the final quarter of 2023 than was previously expected.

Looking back, the Euro reached a low of 1.0482 EUR/USD on Oct. 3 and strengthened to a high of 1.09765 on Nov. 21, a gain of 4.7% in less than two months. While we have seen weakness during the past two sessions, today's move has boosted the euro against the USD which is currently showing a modest gain on the weekly chart over four sessions. Since Oct. 3, the December contract has rallied to the 50% retracement of the move from the July high to October low, while is currently testing this resistance.

Another currency to be watched is Russia's ruble. The continuous active chart on Prophet X shows a move from 104.058 RU/USD on Oct. 6 to a low of 89.047 this week, a drop of 14.4%, which signals ruble strength against the USD. This sudden move has seen the ruble reach its strongest trade since late June. This leads to challenges for producers and exporters in the country, with sales converting to fewer rubles. A social media chart posted by Andrey Sizov points out the challenges of the current market for 12.5% protein wheat in Russia, which is seen rising in price in U.S. dollars, while the price is seen diverging or moving lower when valued in rubles.

The ruble has strengthened for six consecutive weeks partially due to policy that is forcing certain exporters to convert a large percentage of foreign exchange reserves into rubles, forcing the domestic currency higher. The move overall has led Sizov to speculate that Russia's wheat export potential, currently estimated at 50 mmt by the USDA, may prove overstated.

Next is Argentina, where the president-elect Javier Milei has promised substantial economic reform across the country's failing economy. A Reuters piece released on Nov. 23 indicates that Argentina grain producers are "paralyzed," partially due to producers holding onto grain while hoping for further devaluation in the country's peso that would boost returns. Gustavo Idigoras, head of the CIARA-CEC organization that represents major grain companies, says "Milei's government must be the government that has the greatest export focus in history, an aggressive export policy. For that they must first eliminate all restrictions on day one."

While not currency related, economic policy in Ukraine also bears watching. The Ukraine Grain Association points to the government's "ill-considered" plans that would affect both taxation and pricing of exports.

Weeks ago, Reuters reports that the Ukrainian government estimates that up to one-third of Ukraine's exports are traded in cash in order to avoid taxes. It seems logical that government would attempt to plug this hole, although this is not welcomed by the Ukraine Grain Association. At the same time, the government is proposing a minimum selling price based on the average of the world price over the previous 10 days. Industry has expressed concern that in some situations, such as a falling market, the average price could leave exporters uncompetitive and locked out of the market.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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