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Unfavorable Weather in US Wheat Belt Drive Wheat Prices

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Wheat prices surge

Wheat March futures prices on the Chicago Board of Trade (or CBOT) rose by 2.0% and closed at $4.75 per bushel on December 29, 2015. Wheat futures prices rose due to unfavorable weather conditions in the US Wheat Belt. ETFs such as the Teucrium Wheat ETF (WEAT) followed CBOT and rose 1.8% on December 29.

Weather conditions in the US Wheat Belt are forecast to remain dry in the northwestern area after the heavy rainfall. Weather conditions are anticipated to be cold and dry in this region. It would keep wheat in dormant conditions and hinder growth. In contrast, in the southern parts of the US Great Plains, wheat fields are in flood conditions. The higher-than-needed moisture could hurt the wheat plants. The southwest areas of the US Great Plains have snow but are facing higher-than-average temperatures. Higher temperatures are melting the snow and creating higher-than-expected moisture for the wheat plants, which might prove unfavorable. The speculation of adverse weather conditions increased wheat futures prices on December 29, 2015.

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Argentine competition in the wheat exports market could cause Russian wheat to miss its export targets for the marketing year 2015–2016. Russia produces a vast quantity of quality wheat to meet the requirements of Egypt, the largest importer country. The analyst believes that Russia might reduce its wheat export tax and eliminate it in the January 2016 review of the proposal. The increased export competition and price efficiency could adversely affect US wheat in the near term.

Food company stocks

The sharp rise in wheat prices negatively affected food companies and shot up their costs of production. Prices of Pilgrim’s Pride (PPC) fell slightly by 0.13% on December 29, 2015. In contrast, Hormel Foods (HRL), JM Smucker (SJM), and General Mills (GIS) rose 0.60%, 0.46%, and 0.51%, respectively, on December 29. ETFs such as the VanEck Vectors Agribusiness ETF (MOO) rose by 0.64% on December 29.

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