Speculation of Higher Damage Supported Wheat Prices


Jan. 27 2016, Updated 10:48 a.m. ET

Wheat prices rose

March wheat futures trading on the CBOT (Chicago Board of Trade) rose by 0.67% and closed at $4.84 per bushel on January 26, 2016. Wheat futures prices rose due to speculation of weaker output from Europe and Russia. The Teucrium Wheat Fund (WEAT) followed the prices on the CBOT. WEAT rose by 0.86% on January 26, 2016.

Unfavorable weather conditions in Europe and Russia could be lower-than-anticipated in the week ending on January 30, 2016. According to the warning from MARS, a European Union monitoring agency, the weather in these regions could lead to higher-than-anticipated freeze damage. Highlighting the concerns in the plant wheat-belt, the agency’s report stated that the areas under a lower temperature threat didn’t have a thicker snow blanket to protect against the potential winterkill. The weather in December is usually cold. This prepares wheat for the cold resistance and hardens it. However, mild temperatures in December 2015 failed to prepare the wheat from the potential threat. The projections of higher winterkill were negative for the wheat output in Europe and Russia. The speculation of lower wheat production from key export competitors supported US wheat prices on January 26, 2016.

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Russian wheat has a renewed threat of export tariffs, according to the Russian Agriculture Minister’s statement on January 25. The export tariffs are in the discussion due to the higher food inflation in Russia because of the falling Russian ruble. Authorities claim that the tariff would weaken the export pace and help reduce the domestic inflation to support Russian customers. The speculation of more expensive Russian wheat supported the US wheat export sentiment and prices on January 26, 2016.

Food companies stock

The increase in wheat prices isn’t favorable for food businesses. Wheat is an essential input item for the businesses. Companies including J.M. Smucker (SJM), Pilgrim’s Pride (PPC), Hormel Foods (HRL), and General Mills (GIS) rose by 0.89%, 0.93%, 1.7%, and 0.60% on January 26, 2016. The VanEck Vectors Agribusiness ETF (MOO) rose by 1.6% on January 26 with the increase in wheat prices.


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