Penn Wealth Publishing

2015.06.14 Journal of Wealth & Success Vol 3 Issue 23

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wealth & success Copyright 2015. All Rights Reserved. investment intelligence command & control tactical awareness 8 wealth & success volume 3 issue 22 June 14, 2015 It has been around at least 10,000 years, helping sustain human life. In the British Museum, you can view loaves of bread baked with it 5,000 years ago. It is the third most-produced grain, following corn and rice. A cross between three different grass species, it helped America become the "breadbasket of the world" in the mid-20th century. Wheat. Those amber waves of grain that abun- dantly fill the windshield of a Midwestern traveler in summer or early fall. It is a beautiful sight, but it also helps feed people in 70 countries each year and brings in about $10 billion to the US economy. What is going on with the price of wheat? Just a few short years ago, one unit of winter wheat was selling for about 820 cents per bushel; in the past few weeks it has climbed back from 477 cents per bushel to around 522. From peak to trough, that is better than a 40% drop in price. Before we salivate at the condition, let's consider the root causes of the problem. First, there is the improving weather forecast. Meteorologists have amended their predictions for the summer months, now seeing warmer, drier conditions for the top wheat-growing states, like Kansas and North Dakota (which account for 1/3 of total US production). The weather outlook for non-US grow- ers is also improving, meaning the world may see a much larger surplus than expected. According to the USDA, the large global surpluses of wheat may grow to 2.1 billion bushels by next year. Increased competition. It should be noted that the United States is no longer the largest producer of wheat in the world. Despite the 2.5 billion or so bushels harvested in this country each year, China and India each produce more than the US. Countries like Russia, France, Australia, and Canada also produce and export abundant amounts of the grain. And we must not underestimate the importance of America's relationship with the 70 or so nations which buy our grain. It was recently announced that Russia would supply Egypt, a once-close US ally, with 240,000 metric tons of wheat. The global pie is only so big—that is a massive order that the United States should have filled. Additionally, con- sider the fact that wheat is fungible—a metric ton of Russian wheat is an absolute substitution for a metric ton of American wheat—and we begin to see how important our global relationships have become. Sorry Senator Paul, isolationism is economic suicide. Leveling global demand and a strong US dollar. While the 2.1 billion-bushel projected surplus would rep- resent a 6% year-over-year gain, global demand has levelled off. When you consider that a certain percentage of the wheat produced each year goes to feed livestock, you begin to realize how variables like the price of cattle can affect the demand for wheat. A strengthening US dollar (though we completely support parity with the euro) makes our wheat more expensive to buy than other countries' supplies. With cen- tral banks in China and Europe pumping money into their economies while the US is finally looking at rate hikes, the strength in the dollar is here to stay for the next sev- eral years. Time to invest? Here's the bottom line: Studying all of the variables, we project the price of wheat to remain range-bound over the next year, trading somewhere between $4.50 and $5.50 per bushel. While our favorite way to play the wheat market, the Teucrium Wheat Fund (WEAT), is sitting near a one-year low of $10.60 (down from $15), we believe the price could break back into single digits. The speed at which it fell from $15 to $10 (one month) puts us in the enviable position of waiting for the next probable drop, while others rush in prematurely. Assuming the forecasters are correct, we should have some nice summer weather headed our way in the heart- land. Looking forward to sunny days, and bumper crops. Wheat Looks Tempting After a multi-year slide in its price per bushel, should you add this vital commodity to your investment plate? Commodities Outlook

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