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Market factors – expectations and the dollar

Фактори на пазара – очаквания и долар

In a series of articles, we look at the factors that determine the wheat market. Today we will focus on two more of them – expectations and the US dollar.

In terms of expectations, if wheat producers are hoping for a high price, they will plant more wheat compared to other crops for the following season. When farmers then go to market with the crop, supply will be high, causing the price of wheat to fall.

So the wheel turns. If farmers then expect low prices to persist, they will reduce wheat acreage for the following year, leading to a return to high wheat prices again.

US dollar

Like most internationally traded commodities, wheat is valued in US dollars. In general, a decrease in the value of the US dollar against the buyer's currency means that the buyer will have to spend less of his own currency to buy a given amount of the good. As the commodity becomes cheaper, the demand for the commodity increases, causing the price to increase and vice versa.

A weaker dollar can also act as an incentive for producers to increase production. For example, the depreciation of the US dollar against the euro can reduce profit margins for wheat producer in the EU.

Therefore, the prospect of a lower profit margin acts as an incentive to reduce the supply of wheat.

In recent months, we have witnessed this phenomenon, albeit with the opposite sign. Parity in the Euro/Dollar ratio led to a deliberate preference for one origin over another.

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