China Agriculture View

The U.S. dollar’s slide this week to its lowest level in 14 months will not be a major shot in the arm for U.S. grain exports because of a steady rise in prices fueled, ironically, by the weaker greenback.

This week’s broad-based commodities market rally on the back of the tumbling dollar, which lifted prices for corn, soybeans and wheat to multiweek highs, has largely offset the weak dollar’s benefits, traders and analysts said.

“The prices have gone up precipitously here in a short amount of time and that has actually cut our exports back,” said Don Roose, analyst with U.S. Commodities.

“The weaker dollar has not compensated for the run-up that we’ve had,” he said.

U.S. corn futures on the Chicago Board of Trade rose to a 3-1/2 month high this week, soybeans hit a six-week high and U.S. wheat reached a 10-week peak as the U.S. dollar fell to a 14-month low against a basket of major currencies.

A weak dollar is traditionally viewed as a catalyst for exports of dollar-denominated commodities like corn, soybeans and wheat because it increases the buying power of those holding other currencies.

Wheat is a particularly currency-sensitive commodity because the grain is exported by far more countries than corn and soybeans.

But U.S. wheat export sales projections have declined in tandem with the sinking dollar due to ample global supplies of cheaper wheat and comparatively higher U.S. shipping costs to key markets.

Egypt, one of the world’s top wheat importers, bought 180,000 tonnes of French wheat this week, passing on U.S. offers which were $18 to $20 a tonne more expensive.

The U.S. Department of Agriculture cut its projection for 2009/10 marketing year U.S. wheat exports this month to 900 million bushels, down 50 million bushels from its previous month estimate. Some traders said the export outlook could slip further despite the dollar’s weakness.

“The futures market is trading the dollar prematurely rather than waiting to see if we actually get demand from a weaker dollar. The market has kind of made up for the currency move almost one-for-one,” said a U.S. wheat trader.

Source: Reuters