uploads///DecWheatTChart

Wheat Prices Breach 2 Crucial Support Levels

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Jan. 7 2016, Updated 8:08 a.m. ET

Trend in wheat prices

March wheat futures prices were below the key support level of 460 cents per bushel on January 4, 2016. Prices breached two crucial support levels in a single day. A bearish fundamental outlook supported the volumes of the contracts, which rose 242.9% in the previous day. The open interest rose slightly by 0.51% on January 4, 2016. 20-day, 50-day, and 100-day moving averages were 479, 491, and 498 cents per bushel, respectively, significantly higher than the prevailing price levels.

 

The chart indicates that prices might stay in the range of 455 to 470 cents per bushel in the short run.

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Price drivers

Less-than-anticipated damage from floods in the Midwest US, favorable weather conditions for wheat production, higher export competition, and slower US wheat exports dragged wheat prices down on January 4, 2016. Appreciation in the US dollar by 0.14% weighed on export sentiment and negatively affected wheat prices on January 4, 2016.

Lower temperatures in the key Black Sea winter wheat producing regions could adversely affect production, which would support the US wheat export competition in the near term.

Stock review

The decline in wheat prices is favorable for the profitability of food companies, as their cost of production falls. Despite the fall in wheat prices on January 4, food businesses fell. Shares of JM Smucker (SJM), Hormel Foods (HRL), and General Mills (GIS) dropped on the third consecutive day by 0.78%, 1.1%, and 0.31%, respectively. In the past three days, these companies lost 1.9%, 2.8%, and 2.4% in value. Pilgrim’s Pride (PPC) fell by 0.95% for a total of 2.9% over the past four days. The VanEck Vectors Agribusiness ETF (MOO) dropped by 1.3%, extending the fall to 2.9% over the past three days.

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