Wheat futures prices dropped on January 20
Wheat March futures trading on the CBOT (Chicago Board of Trade) shrank by 0.63% and closed at $4.71 per bushel on January 20, 2016. Wheat futures prices dropped due to declining US wheat export cues with higher competition cues in international markets. Following suit, the Teucrium Wheat Fund (WEAT) on the CBOT decreased slightly by 0.15% on the same day.
Duking it out on the world stage, US loses share
With wheat’s rising supply on the world balance sheet, wheat on the export market is facing stiff competition. Recent developments show that major wheat-producing countries including Argentina, the European Union, and Russia have either changed their policies and export taxes or are in the process to do so. As a result, since the start of the twenty-first century, US wheat has been losing its share on wheat export markets.
According to the projections of International Grains Council, US wheat exports could reach 24 million tons in the marketing year 2015–16, compared to Russia’s 23.1 million tons. It indicates that the former top positions of wheat exporters are in threat. However, with the decline in export tariffs, the international market still appears to be backing Russian wheat export sentiments in the near term. But this trend is what also dragged US wheat prices down on January 20.
Meanwhile, wheat-producing giant China might have to face lower-than-average temperatures for the week ending January 24, and lower-than-average temperatures in the Chinese Wheat Belt could negatively affect the nation’s wheat crop. The diminished Chinese production sentiment, in turn, helped support US wheat for exports on January 20.
What this could mean for wheat stocks
The decline in wheat prices is favorable for food companies as their cost of materials fall with the falling price of essential ingredients. However, Hormel Foods Corporation (HRL), J. M. Smucker Company (SJM), General Mills (GIS), and Pilgrim’s Pride Corporation (PPC) still declined by 1.7%, 0.29%, 1.5%, and 1.2%, respectively, on January 20, with the downward price movement in wheat. Notably, the VanEck Vectors Agribusiness ETF (MOO) also fell by 1.1% on January 20.
In the next and final part of this series, we’ll take a look at the larger trend in wheat prices as of January 20.