As far as commodities go, wheat is right up there with oil. It’s one of the most important agricultural commodities that’s the staple food of the Middle East and North Africa. As a result of its popularity in emerging markets, wheat is growing in importance. Wheat prices can rise and fall, so to determine how the market will move, you have to understand the factors that influence the price.
As it’s widely used in the production of food, wheat has the potential to hedge against inflation. This enables investors to profit from several available options. So what are the top factors that impact wheat prices?
Probably the biggest driver of the price of wheat is the economy. If you pay attention to the market, you’ll notice that the price will drop when the economy is weak and rise as soon as the economy is healthy again.
Investors should be aware that this trend has stayed true during every recession over the last three decades in North America.
The cost of wheat usually moves with the rate of inflation. If you pay attention to historical data, you’ll notice that the price of wheat will rise whenever there’s a rise in the inflation rate. This works vice versa as the price will fall when the rate of inflation drops.
However, this is not always the case, but for the most part, they tend to move in unison. So, if you’re speculating on wheat prices, it will be a good idea to look into the inflation outlook.
The production outlook of top wheat producing countries will also influence the price of wheat. As a result, when production is intense, prices can deviate from inflation trends.
Whenever production in one of the top producing countries is expected to fall, wheat prices will rise. This is usually the general response because of fears associated with tightening supply. So when there’s a surplus expected, prices will also fall.
As it’s an agricultural commodity, the weather has the potential to influence prices. The amount harvested will heavily depend on the environment, so it’s natural that prices can rise and fall.
For example, if a drought is expected in one of the top producing countries, prices will usually go up. So investors should keep an eye on the climate around the world when speculating on the price.