Speculations of Weaker Supply Supported Wheat Prices


Jan. 22 2016, Updated 11:28 a.m. ET

Wheat prices rose

Wheat March futures trading on the Chicago Board of Trade (or CBOT) rose by 0.74% and closed at $4.75 per bushel on January 21, 2016. Wheat futures prices rose due to speculation of weaker supply due to unfavorable weather conditions. The Teucrium Wheat Fund (WEAT) followed prices on CBOT and increased by a mere 0.12% on January 21, 2016.

The US Midwest is facing unfavorable cold climatic conditions. Likewise, cold temperatures are affecting the key wheat-growing Black Sea region. The higher-than-average cold weather could increase the winterkill for the wheat crop. The speculation of lower-than-anticipated wheat supply due to higher winterkill supported the wheat futures prices on January 21, 2016.

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Argentina’s Buenos Aires Grains Exchange increased the wheat output projections, citing favorable weather conditions and forecasts. The exchange increased wheat production from 10.1 million tons to 10.3 million tons on January 21. At the same time, the Argentinian Agriculture Ministry announced its projections, adding 0.2 million tons to 11 million tons. The speculation of decreasing export share for US wheat kept futures prices under pressure on January 21.

For the European Union in 2016-17, Stratégie Grains forecast soft wheat exports at 28.9 million tons. This is higher than 2015-16 exports by 800,000 tons. Stratégie Grains also projected that the EU wheat harvest could be lower by 500,000 tons to 143.1 million tons because of lower planting to 23.9 million tons. The speculation of lower EU output supported the US wheat export sentiment on January 21, 2016.

Food companies

Rising wheat prices would negatively affect the stocks of food businesses, as their cost of production increases with the rise in critical input. Shares of JM Smucker (SJM), General Mills (GIS), Pilgrim’s Pride (PPC), and Hormel Foods (HRL) dropped by 0.10%, 0.81%, 1.0%, and 1.4%, on January 21. In contrast, the VanEck Vectors Agribusiness ETF (MOO) rose by 0.50% on January 21, 2016.


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