The Good: The best news of the week came from the oil market, where prices dropped for the second consecutive week. A little matter of the U.S. President wanting to release crude oil supplies from the Strategic Petroleum Reserve (SPR) was enough to drive oil prices lower for the second consecutive week. The nearby January futures are trading at US$75.94 per barrel which is down eight per cent from the contract highs established at the end of October. Technicians point to another US$10 per barrel downside from these levels before reaching substantial support. At least crude oil prices are providing some relief from the persistent increases in farm input costs for 2022.
The Bad: Canola is continuing to get more expensive despite the C$8.50 per tonne drop today. The spread between European rapeseed and ICE canola moved by more than C$40 per tonne this week in favour of Canadian canola. Although this sounds like good news, European canola values have been supporting Canadian canola prices since the end of September. Currently Canadian canola futures are at a C$10 per tonne premium to European rapeseed futures. The move is likely related to the ongoing Australian canola harvest which is now being shipped to European destinations. This is not good news for Canadian canola markets!
The Ugly: Most commodities are priced and traded in U.S. dollars. The U.S. dollar made another move with the dollar index moving up by close to one point on the week. This is the second consecutive week of strength in the U.S. dollar, which is not beginning to impact commodity prices. Although you can blame government policy on the crude oil drop this week, some of the losses should be attributed to the strong U.S. dollar. Agricultural commodities are not an exception to the stronger dollar with wheat the most vulnerable to the currency fluctuations. As long as U.S. inflation appears to be strengthening, the U.S. dollar is going to remain strong. That’s because strong inflation numbers will increase interest rates sooner rather than later.