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Will Wheat Prices Remain Stuck in Their Falling Price Channel?

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Trend in wheat prices

Wheat futures contracts for March 2016 delivery were near the support level of $4.45 per bushel at the close of yesterday’s trade. Prices rose and breached their resistance level but continued to trade within the falling channel yesterday. Volume decreased by 45.3%, and open interest fell by 35.7% on the day. Wheat futures continued to trade below the crucial 20-day, 50-day, and 100-day moving averages of $4.63, $4.70, and $4.86 per bushel, respectively. Wheat is anticipated to continue in its falling price channel with strong supply side pressure.

 

The chart above indicates that wheat prices might stay in the range of $4.40–$4.50 per bushel in the short term.

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Price drivers

Higher-than-anticipated weekly export sales data supported wheat demand yesterday. However, stronger-than-anticipated projection from the Argentinean government for 2015–2016 wheat production negatively affected wheat prices due to greater export competition. Stronger competition in the wheat export market, with competitive contract bids for Egypt’s demand for 300,000 tons of wheat, indicated weaker prospects for US wheat in the short term. However, the US dollar fell 0.05% yesterday and supported the wheat export sentiment, as a weaker US dollar is favorable for the export of US goods.

Stock review

The rise of wheat prices adds to the cost of input for companies in the food industry. However, yesterday’s rise of wheat prices, the shares of food companies rose. The J.M. Smucker Company (SJM), General Mills (GIS), and Hormel Foods (HRL) rose for the second, third, and fourth straight trading days by 1.4%, 2.0%, and 0.37%, respectively. These stocks rose 4.6%, 3.0%, and 2.6%, respectively. Pilgrim’s Pride Corporation (PPC) rose 2.7% yesterday, recovering from the previous day’s drop in wheat prices by 1.1%. The VanEck Vectors Agribusiness ETF (MOO) rose for the second straight trading day by 0.93% yesterday.

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