Why Wheat Prices Could Continue Testing Support at $4.4 per Bushel



Trend in wheat prices

March wheat futures price was below the key support level of 440 cents per bushel on March 2, 2016. Prices tested key support level on the day. Speculation of bearish fundamental outlook supported the volumes of the contracts that shot 21.44% to the previous day. The open interest dropped by 26.1% on March 2, 2016. Key moving averages for 20-day, 50-day and 100-days were 456, 466, and 482 cents per bushel significantly higher than the prevailing price levels.

The chart suggests that prices will stay in the range of 440 to 450 cents per bushel in the short run.

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Price drivers

Unfavorable warm and dry weather has continued in the key wheat-producing region in the Southern US Plains. This weather negatively affected the supply cues and supported wheat prices on March 2, 2016. Stronger-than-anticipated Egyptian demand cues supported the wheat futures prices on March 2, 2016. The US dollar depreciated by 0.25% on March 2 and supported the wheat export sentiments as the lower US dollar is favorable for wheat exports.

Stock review

The improvement in wheat prices is unfavorable for food businesses, as their cost of input rises. Share prices of JM Smucker (SJM) fell by 0.33% on March 2, 2016, with the increase in wheat prices. General Mills (GIS) and Hormel Foods (HRL) rose for the second consecutive trading day by 0.77% and 0.27%, respectively, on March 2, 2016. Pilgrim’s Pride (PPC) rose by 1.8%, recovering from the previous day’s drop of 2.3% on March 2, 2016. The VanEck Vectors Agribusiness (MOO) rose by 0.02% for the second consecutive trading day on March 2, 2016, with the increase in wheat prices.


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