Simon Watkins: Grain exports in Ukraine have been restriction free for little more than a month, and are about to be limited once more after drought and frosts hit the winter crop. March wheat prices bounced off their key support level of $6.25 per bushel on Friday, as support for a short-term rising trend comes as news that Ukraine (the world’s seventh-largest wheat exporter) will impose a limit on wheat exports of 4.8 million tonnes, half what traders had planned to ship overseas.
The supply constraints are compounded by many of the transit points for wheat shipments from the Black Sea ports remaining frozen, with continued cold weather predicted across Eastern Europe as a whole.
The market is unlikely to quickly return to the state of oversupply that had seen wheat prices fall by around 30% over the past 12 months, bolstered by expected record harvests from Australia this year (the world’s second largest wheat exporter) due to favourable weather.
Looking further forward however, analysts forecast a return to sliding wheat prices. This is partly due to a recent statement from the Australian Bureau of Agricultural Resource Economics and Sciences that lifted its forecast for wheat production in the country this year by 4.2% to a record 29.5 million tonnes, saying that key growing regions had completed harvesting before the onset of heavy rains.
Additionally bearish for longer-term wheat prices are U.S. Agriculture Department estimates that U.S. wheat plantings for the 2012/13 crop year will be 56.5 million acres in its annual baseline projections, against seeding a year ago by U.S. farmers of 54.4 million acres.
Investors wanting exposure to wheat should look to the Powershares DB Agriculture Fund (NYSEArca:DBA).
Teucrium Wheat Fund ETV (NYSEarca:WEAT)
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