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Will Unfavorable International Weather Support US Wheat Export?

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Wheat prices decrease

Wheat futures contracts for December trading on the CBOT (Chicago Board of Trade) fell by 1.13%, settling at $5.02 per bushel on October 15, 2015. Prices declined on account of the rising US dollar index and weaker demand in the oversupplied market. ETFs like the Teucrium Wheat Fund (WEAT) followed CBOT and settled lower by 1.18% on the same day.

US wheat contracts have continued to decline amid weaker demand sentiments in October. The world wheat demand is shifting toward other regions as US wheat prices continue to increase, indicating a failure in competitiveness parameters. On October 15, the US Dollar index rose by 0.54% against other major currencies, and the strong US dollar makes wheat expensive for importing countries.

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Weather in other regions

Weather conditions in Australia and the Black Sea Region have worsened as the heat wave continues to hinder expected wheat crop progress. The US Plains region should also see extended dry weather through October 17, although on October 18 there are expectations of precipitation that could help the wheat crop progress. Still, the stronger US dollar might offset the expected rise in US wheat exports, as it will still be expensive for importing nations.

As of October 15, wheat futures contracts declined consecutively on volume and open interest by 41.34% and 2.33%, respectively, over the last two trading days. Weather-based trading has taken over the markets with speculative trades, and so volatility has increased. To avoid more volatility risk, traders are squaring off their positions. In the declining exports scenario, negative sentiments have populated the market and have hurt the wheat volumes and prices dramatically. This price pattern has also turned bearish on account of sluggish demand and relatively expensive US wheat.

Impact and reactions

Bunge (BG), CHS (CHSCP), and Pilgrim’s Pride Corporation (PPC) declined by 0.23%, 0.03%, and 3.30%, respectively, on October 15, 2015. However, Danone (DANOY) increased by 1.70% on the same day. The Power Shares DB Agriculture Fund ETF (DBA), which has exposure to these companies’ stocks, declined by 0.61% on October 15.

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