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Speculation of Favorable Weather in US Wheat Belt Hurts Wheat

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Wheat prices fall

Wheat March futures trading on the Chicago Board of Trade (or CBOT) fell by 0.16% and closed at $4.57 per bushel on February 12, 2016. Wheat futures prices fell due to the speculation that favorable weather could increase production and supply.

The Teucrium Wheat ETF (WEAT) did not follow wheat prices on the CBOT and stayed at its previous close of $8.85 on February 12.

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Weather conditions are favorable for US wheat

US wheat output is strong due to favorable weather conditions in the US wheat belt. The near-term weather forecast in major US wheat-producing regions is anticipated to be supportive of wheat development.

However, there have been concerns about warmer conditions developing in southern parts of the Great Plains. Analysts believe that this could drive wheat prices in the near future. Despite this sentiment, speculation of favorable weather conditions in the short term could support the output consensus. This favorable speculation dragged prices down on February 12, 2016.

The quality and acceptance issue of ergot contamination in Egypt has very negatively affected the wheat export market. Analysts project that it would not be a surprise if Egyptian wheat demand does not inspire a rally in prices due to a lack of confidence.

It will likely be very difficult for wheat providers to offer wheat at competitive rates, given the issue of policy uncertainty that’s been present in the current high availability and weak demand scenario. The speculation that this would negatively affect US wheat exports dragged prices down on February 12, 2016.

Food companies’ stocks

The fall in wheat prices supports food businesses that use it as an input material. With the drop in wheat prices on February 12, 2016, companies such as General Mills (GIS), Pilgrim’s Pride (PPC), and J.M. Smucker Company (SJM) rose by 1.6%, 4.9%, and 0.61%, respectively. However, Hormel Foods (HRL) fell by 0.46% on February 12.

The VanEck Vectors Agribusiness ETF (MOO) rose by 1.1% on the same day.

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