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Wheat Prices Could Keep Falling in 2016

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Wheat production in the US

Wheat is the core staple food for many economies. According to US Department of Agriculture’s 2014 report, the United States was the fifth-largest producer, with 55,129 thousand metric tons. According to the latest December WASDE (World Agriculture Supply and Demand Estimation) Report, US wheat production for the marketing year 2015–16 is projected to reach 1,370 million bushels, and calendar 2015 was positive for wheat production in the US.

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Weather, export competition, and price wars

Favorable weather conditions, particularly sufficient moisture, supported production during calendar 2015. In the months of July and September, WASDE reported higher-than-anticipated production and a lower pace of exports, which dragged wheat prices down during those months.

Tougher export competition and an increasing number of players were also unfavorable developments in 2015. For example, rising wheat production from the Ukraine and Argentina substantially hurt the wheat price sentiment in the US. The new calendar year could also bring about wheat price wars between Argentina and Russia, given the reduction in export tariffs and the weakening Argentinian peso and Russian ruble, which could would hurt inefficiently priced US wheat in the initial months of the new calendar year.

Furthermore, unfavorable weather developments induced by el Niño and possibility of la Niña weather effect might drag wheat production significantly down in calendar 2016.

Checking in with wheat stocks and ETFs

Food companies Tyson Foods (TSN), ConAgra Foods (CAG), (SJM) J M Smucker Company, and General Mills (GIS) increased by 34.91%, 19.21%, 24.20%, and 10.86%, respectively, due to lower wheat prices during 2015 as of December 29, 2015. By contrast, the VanEck Vectors Agribusiness (MOO) declined by 9.93% during calendar 2015.

In the next part of this series, we’ll take a look at soybeans at the end of 2015.

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