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Is the WEAT Correction Here?

Despite a good harvest, the exchange traded fund for wheat, Teucrium Wheat (NYSE: WEAT) has been rising due to the drought in the Midwest Farm belt of the United States and now the initiation of Quantiative Easing Two.

The drought did the most damage to the corn crop.  But as the chart below shows, both the WEAT and the CORN, Teucrium Corn (NYSE: CORN),the exchange traded fund for corn, rose.  However, it was not a steady rise as there were many dips.  These pullbacks were obviously from speculators cashing in and taking short term profits.

This could be the beginning of the correction for each.  There have been pullbacks since the rise in early June, but the speculative forces from the drought and now Quantitative Easing 3 have sent the prices higher.   The recent downturn could signal the correction.

What is significant about the most recent downturn is that it appears as if all speculative forces have been committed.  The impact of Quantitative Easing 3 appears to be wearing off very early.  Judging by the dip in late August for each, the effects of the drought were starting to decline about a month ago.

Wheat contracts have been falling.  Eventually the fundamental forces of basic supply and demand will be felt.  That has certainly happened any number of times along the way since early June.

Both the CORN and the WEAT reached record highs.  Each has fallen since.  Now at around $48.60, the CORN reached a year high of $52.69.  Now at $24.34, the WEAT reached the peak for the last 52 weeks at $25.35.

Like the saying goes, take the stairs up with grains and ride the elevator down.  With the effects of the drought wearing off and Quantitative Easing 3 accounted for in the price, it should react more to the fundamentals of supply and demand rather than speculative forces.

 

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