Wheat Prices in a Downward Channel: How Low Can It Go?
Time to Watch Grain Closely: Reading the Latest WASDE Report
Trends in wheat prices
On February 9, 2016, wheat prices continued downward, losing the crucial support of 460 cents per bushel and continuing the fourth consecutive day of losses. Volumes dropped by 13.1% for the second straight day while open interest fell by 1.7% the same day. Wheat prices are trading below the key moving averages of 20-day, 50-day, and 100-day and are anticipated to continue in a downward channel.
The graph below indicates that prices might stay in the range of 455–465 cents per bushel in the short run.
Price drivers
The US Department of Agriculture’s February 2016 WASDE (World Agriculture Supply and Demand Estimation) report also negatively affected prices, with greater-than-projected marketing year-end inventories for the US and the world. The decline in exports in the US and the increase in the world production cues further hurt prices on the day. Meanwhile, the US dollar depreciated by 0.61% on February 9 and boosted the export sentiments on the day.
Stocks review
The drop in wheat prices supports the profitability of the food businesses because it pushes down the cost of materials. JM Smucker Company (SJM) and General Mills (GIS) advanced by 1.3% and 0.39%, respectively, on February 9. Campbell Soup Company (CPB) advanced by 1.7% for the third straight day on the day, but Pilgrim’s Pride (PPC) dropped by 2.6%, losing the previous day’s gains. Notably, the PowerShares DB Commodity Index Tracking Fund (DBC) declined for the fourth consecutive trading day by 2.5%, showing a drop of 3.8% during the four-day period.
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