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Wheat: Upward Pressure On Price Continues

Jun. 09, 2020 3:13 PM ETDBA, WEAT, RJA, JJA, FUD, UAG, TAGS, ADZ1 Comment
Discount Fountain profile picture
Discount Fountain


  • Wheat prices continue to go higher due to weather-related factors and artificial supply restrictions.
  • I expect this to continue for the foreseeable future.
  • However, wheat could see a drop in price over the longer term if artificial restrictions on supply are eased.

Over the past four years, US wheat prices have seen a slow but sustained trend upward.

Source: investing.com

That said, movements in the commodity have been quite volatile in 2020.

Source: investing.com

With much of the world only gradually easing from lockdown measures, demand for commodities more generally has been weak.

Moreover, with the world reportedly having had the warmest month on record in May – this has implications for the global wheat market going forward in terms of output losses. This is expected to restrict supply and prices are expected to rise accordingly.

It was only up until recently that the wheat market was contending with the opposite problem – oversupply in the market which was keeping prices down.

Back in 2016, increasing grain supply from Russia, coupled with a weaker euro and British pound, had made European wheat exports more attractive relative to the United States. Moreover, with wheat demand from China increasing, the country had at the time allowed Russia to sell its barley to the Chinese market – therefore placing downward pressure on price.

However, the supply-demand dynamic has been largely altered as a result of COVID-19. As it stands, Russian exports have decreased significantly due to government export restrictions as of April – with restrictions set to be lifted on July 1. There's precedent for this, as Russia did choose to ban wheat exports as a result of drought destroying crops back in 2010.

Source: investing.com

Moreover, even when restrictions are lifted – Russian producers can only compete on price for so long. Since 2010, the Russian ruble has weakened against the US dollar very significantly.

In this regard, producers will eventually need to raise prices to recoup foreign exchange losses – and this will have the effect of making US and European exports attractive once again.

This article was written by

Discount Fountain profile picture
I am an independent investor with an interest in analyzing stocks across the consumer, finance, telecommunication, and travel sectors. As a data scientist, I also have a great interest in using data tools to better understand a company's financial position.Some examples include:- Aggregating quarterly churn and ARPU data for Deutsche Telekom (DTEGY) and analysing trends over time using SQL: https://seekingalpha.com/article/4516805-deutsche-telekom-growth-potential-remains- Building a Monte Carlo simulation in Python to analyze loss ratios for Zurich Insurance Group (ZURVY): https://seekingalpha.com/article/4459821-zurich-insurance-stock-solid-insurance-company-still-faces-risks- Examining ADR and RevPAR trends by brand for Hilton Worldwide Holdings (HLT) using SQL: https://seekingalpha.com/article/4517248-hilton-worldwide-holdings-an-analysis-of-adr-and-revpar-trendsDisclaimer: All of the author's articles are written on an "as is" basis and without warranty, with no guarantee of accuracy or completeness. They represent the author's opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in any articles published.

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