Favorable Demand Indications Supported Grain Prices
Wheat prices rise
Wheat March futures trading on the Chicago Board of Trade (or CBOT) advanced by 0.97% and closed at $4.42 per bushel on March 2, 2016. Wheat futures prices increased from stronger Egyptian demand cues. The Teucrium Wheat Fund (WEAT) followed the price movements on CBOT and rose by 0.59% on March 2.
The General Authority for Supply Commodities, the state buyer for Egypt, bought 180,000 tons of wheat in a tender at an average price of $184.71 per ton including freight, the new season low. Egypt is the top wheat importer of the world. The participation in the tender was thin due to the uncertainty over the quarantine restrictions in Egypt. Analysts believe that Egyptian wheat buying has slowed since the quarantine issue came to light, which supported the wheat demand consensus for exports and wheat futures prices. However, there has been lower confidence among the analysts about how much benefit the US wheat could receive from this opportunity.
The weather in the US Plains, especially in the southern regions, has continued to be hot and dry as it was in February. The dry and warm weather might not be suitable for the Red Winter wheat that is projected to come out of dormant conditions. The forecasts have dry conditions for the week ending on March 6, 2016. Speculation of unfavorable weather conditions hurting the quality and quantity of the wheat production supported the wheat prices on March 2, 2016.
Food companies’ stocks
The rise in wheat prices negatively affects the share value of food companies due to the increasing cost of materials. However, shares of General Mills (GIS), Pilgrim’s Pride (PPC), and Hormel Foods (HRL) rose by 0.27%, 1.8%, and 0.77%, respectively, on March 2, 2016, despite the increase in wheat prices. However, JM Smucker (SJM) fell by 0.33% on March 2. The Market Vectors Agribusiness (MOO) increased slightly by 0.02% on March 2, 2016, with the rise in wheat prices.
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