Following a lackluster 2013, agricultural commodities such as wheat have enjoyed a smooth ride this year on chilly weather and drought conditions in the U.S. Southern Plains. Fears of export limitations from Ukraine, one of the largest exporters of wheat, have raised supply concerns and drawn attention to this commodity.
But things lately took a rapid turn as wheat fell over 9% over the past 10 days. The decline came after heavy showers in wheat growing areas such as western Nebraska, northeast Colorado, eastern Kansas and eastern Oklahoma that eased dry conditions last week. Abundant supply forecast by the USDA also affected the commodity.
Though the global wheat supply is expected to fall 2% year over year for the 2014–15 season, stockpiles will likely rise 1%. Further, consumption and wheat trade would also decline 1% and 6%, respectively, thereby leading to lower wheat prices.
However, wheat yet again advanced in Wednesday trading on speculation that the recent slide would boost demand from importers. In addition, the scorching heat in Russia over the next few days would also hurt production of the commodity. This is especially true as southeast Russia and Kazakhstan will likely see temperatures above 32 degrees Celsius (89.6 degrees Fahrenheit) by the end of this week, as per the World Agricultural Weather data.
Further, tensions in Ukraine appear to be easing as the Russian President Vladimir Putin is pulling out troops from Ukraine’s borders in order to avoid further sanctions from the West. The withdrawal of Russian troops will reduce tensions, to some extent, in the region and result in favorable conditions for wheat fundamentals (read: 3 Commodity ETFs Surging on Russia Sanctions).
Given the current fundamentals, it is difficult to say much about the wheat price movement over the next few days. But if tensions in Russia fail to deescalate and hot weather in the region continues to disrupt wheat production, the price of the commodity might move higher.
As such, investors should keep a close eye on the pure play Teucrium Wheat Fund (NYSEARCA:WEAT), and catch any opportunity when it arises.
Wheat ETF in Focus
This fund provides exposure to the wheat market in a unique way and reduces the effects of both contango and backwardation. Unlike many commodity ETFs, this product doesn’t just cycle into the next month as expiration approaches, rather it utilizes a much more in-depth approach.