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The Top Factors that Move the Price Wheat


Wheat is one of the most important agricultural commodities in the world. The commodity keeps growing in popularity across the world. In fact, wheat is the primary food staple in North Africa and the Middle East. This goes to show that wheat is important both in developed countries ad emerging markets.

Due to the fact that it is widely used in food production, wheat comes across as having the potential to a hedge against inflation. This means that there are a number of options available to investors looking to profit from the commodity. Essentially, investors can invest in wheat through certain ETFs, stocks of companies that engage in the production of wheat and futures. What are the top factors that move the wheat prices? Find out below cemetery quizzes bellwether 

Economy
The state of the economy is one of the biggest drivers of wheat prices. The relationship seems to be proportional. During weak economies, wheat prices tend to dip. However, once the economy starts to recover, wheat prices go up almost immediately. It could dip later, but there has always been an instant surge. The chart below, which highlights the last recession, confirms this.

wheat.jpg

In addition, for every recession that the US has gone through over the last three decades, this trend has held.  So investors should always keep tabs on economic data when looking to predict the direct of wheat.

Inflation
As said above, investing in wheat could potentially help hedge against inflation. While that may not be absolutely true on every occasion, historical data has shown us that wheat prices tend to move with the rate of inflation. Consider the chart below as reference. It shows the US producer price index for farm products wheat, which embodies the state of the wheat market, and US inflation rate.

wheat2.jpg

If you would consider the chart carefully, you would notice that the price of wheat tend to go up whenever inflation rate goes up. On the flip side, the price of wheat also tends to dip when the rate of inflation comes down. Of course, there are some disparities. However, in most cases, they tend to move together. Therefore, when looking to bet on wheat prices, it might be helpful to check what the inflation outlook is. It might provide a basis for further analysis.

Production outlook in top wheat producing countries
When intense, this is one of the factors that can make the price of wheat diverge from inflation trends. Since we are talking about the production outlook from top producers, it might be worth it to know the countries to set focus on first. This is shown in the table below.

Top wheat producers (in million metric tons)

Rank

Country

2009

2010

2011

2012

1

 China

115

115

117

126

2

 India

80

80

86

95

3

 United States

60

60

54

62

4

 France

38

40

38

40

5

 Russia

61

41

56

38

6

 Australia

21

22

27

30

7

 Canada

26

23

25

27

8

 Pakistan

24

23

25

24

9

 Germany

25

24

22

22

10

 Turkey

20

19

21

20

11

 Ukraine

20

16

22

16

12

 Iran

13

13

13

14

13

 Kazakhstan

17

9

22

13

14

 United Kingdom

14

14

15

13

15

 Argentina

9

15

14

11

World

686

651

704

675

Source: UN Food & Agriculture Organization

For the most part, these are the countries whose production outlook could move wheat prices. In fact, statistics have it that the top ten countries on that list produce about 80 percent of the world’s wheat. In general, when production in any of these countries is expected to dip, wheat prices tend to go up. This is in response to fears of tightening supplies. On the other hand, expectations of an increase in production in any of these countries is likely to send prices lower, which would be in response to speculations that there might be a glutted wheat market. Here is a real life example to use as reference.

On August 19, 2014, Agrimoney reported that wheat futures rose three percent amid concerns over the impact of Ukraine’s crisis on its supplies of wheat. The country confirmed that the crises lead to crop losses, which brought about speculations that there would be a reduction the exports out of the country.

Climatic factors
Being an agricultural product, weather outlooks could also potentially move wheat prices. Historically, in this category, droughts have had the most significant effect on wheat prices. When there are predictions of drought, wheat prices tend to go up. This means that drought hampers the growth and, subsequently, the production of wheat. For instance, in 2010, The Economist reported that a drought in Russia made the country ban exports, resulting in a price hike.

An extremely cold winter and flood have also affected wheat prices in the past. It might interest you to know that winter wheat lies dormant during a winter freeze, which potentially threatens supplies. Here is another instance. In 2007, there was a striking rise in the price of wheat, owing to freezes and flooding in the northern hemisphere and a drought in Australia. If you check the price index chart from earlier, you would be able to see that period. It did not even correspond with a period of increasing rate of inflation.  

Corn/wheat spread
This is sort of a speculative factor. However, historically, wheat and corn prices tend to move together, which means the spread between the two commodities is expected to be constant. However, once there is a divergence, it is believed that some non-fundamental factors are in play. If it deals with wheat in particular, analysts expects that it return. This, therefore, provide another basis for predicting the price movement of wheat.

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