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Year-End Inventories Give Wheat Prices a Spanking

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Wheat prices decline

Wheat futures trading on the CBOT (Chicago Board of Trade) for March expiry dropped by 0.22%, closing at $4.57 per bushel on February 9, 2016. The higher-than-expected WASDE (World Agriculture Supply and Demand Estimations) report for the end of marketing year inventories drove the drop. The Teucrium Wheat Fund (WEAT) followed prices on the CBOT (Chicago Board of Trade), sliding by 0.30% on February 9.

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The US Department of Agriculture’s WASDE report is a monthly review of the agriculture sector and its prospects for the near term. World wheat supply has been souring due to favorable weather conditions supporting production, and we’ve seen a build up in wheat reserves from the hoarding of previous production seasons.

Bushel by bushel

The idea of vague demand due to widespread availability has thus been realized, and the WASDE report anticipates that world wheat inventories at the end of the marketing year 2015–2016 could increase by 6.8 million tons over the projected level to 238.9 million tons.

Notably, the situation in the US is not very different from average conditions around the world. The latest WASDE report projected 25 million bushels in wheat inventory at the end of the marketing year 2015–16, to 966 million bushels, which topped consensus estimates of 947 million bushels. The speculation of huge year-end inventories weighed on wheat prices on February 9.

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Weather matters

Meanwhile, amid indications of favorable weather conditions in major wheat-producing regions, wheat production is anticipated to be strong. Higher production and stronger inventories suggest lower-than-anticipated export sales, and the demand side of wheat anticipates lower export sales by 25 million bushels from the previous projection of 775 million bushels. Lower-than-expected exports pushed wheat prices down on February 9, 2016.

Food company stocks

The slide in wheat prices supports the food businesses because as it reduces the cost of acquisitions across the industry. JM Smucker Company (SJM), Campbell Soup Company (CPB), and General Mills (GIS) rose by 1.3%, 1.7%, and 0.39%, respectively, on February 9 with the fall in wheat prices. By contrast, Pilgrim’s Pride Corporation (PPC) dropped by 2.6%, and the PowerShares DB Commodity Index Tracking Fund (DBC) decreased by 2.6% on the same day.

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