Wheat prices on an uptrend as investors look out for a possible winter kill

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Feb 25, 2021
  • After hitting a one-month high on Wednesday, wheat price pulled back to about $669.15.
  • Investors are on the look out for a winter kill of the US hard red crop due to the frigid conditions.
  • A weak US dollar supported wheat prices as the Fed maintained a dovish tone.

While wheat prices pulled back on Thursday, they are largely on an uptrend. On Wednesday, the prices hit a one-month high of $683.95. However, on Thursday’s session, wheat futures were trading at around $669.15. Investors are looking to see if the frigid conditions in the US Southern Plains and mid-West region will cause significant damage to the hard red winter crop. A weakening dollar and the ongoing bullish sentiment have also facilitated the rally.  

wheat prices

Weakening US dollar

The weakening US dollar has created a favorable environment for the rallying of wheat prices. Like most other commodities, wheat prices have an inverse relationship with the greenback. On Thursday, the dollar index was at $89.813, down by 0.4%. This came as the Federal Reserve maintained a dovish tone. The central bank’s chair Jerome Powell indicated that the bank would maintain the monetary policy as it is till the economy recovers fully.  

US dollar

Fears over possible winter kill

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The surge in wheat prices is also a result of the probable winter kill of the US wheat crop. The country is the second-largest exporter of the commodity after Russia. Since mid-February, major wheat-growing states in the mid-West and the Southern Plains have been experiencing frigid conditions. The winter has been the harshest in decades. Millions of households in Texas and other states have had to cope with power outages, lack of water, and impassable roads.

Analysts and those looking to invest in commodities are now concerned that the extreme weather could affect the winter wheat crop. Winter kill occurs when frigid conditions are coupled with inadequate soil moisture. The phenomenon is especially of concern in the drier parts of the Southern Plains.

At the moment, it is difficult to tell if the winter storm will cause substantial damage to the hard red winter wheat, which is the top wheat class of the United States. However, if the conditions persist into March and April, there is bound to be a decline in supply and a further rise in wheat prices.

Last week, StoneX’s chief commodities economist Arlan Suderman noted that the extent of losses on the wheat fields would only be clear several weeks from now. However, he indicated that 30% of the country’s hard red winter crop was at risk of the winter kill.     

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