Wheat prices are hovering around a three-year high. Fears of export limitations from Ukraine, one of the largest exporters of wheat, have raised supply concerns, drawing attention to this commodity. Drought conditions across Europe and the Great Plains have weighed on yields, giving rise to such fears. Key growing areas like Russia, Ukraine, France and Britain, and regions like Australia, China and other parts of Asia have been witnessing declining yields due to heat waves.
As a result, Chicago wheat futures touched a three-year high last week, while a key European benchmark scaled beyond a four-year high, per Wall Street Journal. The U.S. Department of Agriculture (USDA) forecasts that global wheat stockpiles will decline for the first time since 2013. Plus, there are “earlier issues with the Black Sea crop drawing down inventories quite quickly,” per J.P. Morgan.
Inside Weather Disruption
El Niño, a warm-water phenomenon that blows up off the Pacific coast of South America, often has a great impact on agricultural prices. El Nino causes weather disruptions in many regions around the world, including drought in some and flooding in others due to abnormal heating up of the Pacific Ocean.
The latest round of weather disruption has stemmed from the El Niño cycle. In Southeast Asia, a bout of El Niño weather systems has led to drier weather in key wheat growing regions in recent months, per Wall Street Journal. The weather conditions may turn severe in the coming months, per Bloomberg. The source said Eastern Australia’s wheat prices saw a 20% jump last month, as the southern hemisphere’s largest exporter suffered its driest July since 2002.
By the arrival of the winter season in the Northern Hemisphere, the chances of an El Nino rise to 50%, per the National Weather Service’s Climate Prediction Center (CPC). There is a good side to this bad weather condition. As per the source, in its previous few years, El Niño led the S&P agricultural commodity index beat gains at the S&P 500 index by a considerable margins (read: Can El Nino Boost Agricultural ETFs?).
Investors should note that global soft commodities ETF investing remained under pressure lately on U.S.-China trade war tensions. China put higher import tariffs on a host of U.S. agricultural products (read: China Tariffs Target US Farm Belt: Stocks and ETFs in Focus).
In such a backdrop, inclement weather conditions might act as a tailwind to this investing arena. Corn prices also stayed strong on faltering crop conditions in the United States and on “spillover support from wheat”, per the source.
Agriculture ETFs in Focus
The latest jump in wheat prices makes it necessary to look at wheat ETFs.
Teucrium Wheat ETF (WEAT - Free Report)
This underling index looks to reflect the daily changes of a weighted average of the closing prices for 3 futures contracts for wheat that are traded on the CBOT. The fund was up 6.7% in the past three months (as of Aug 6, 2018).
Teucrium Corn ETF (CORN - Free Report)
The underlying Corn Futures index looks to reflect the daily changes of a weighted average of the closing prices for three futures contracts for corn that are traded on the CBOT. The fund has gained about 4% in the past month while it lost 6% in the past three-month frame (as of Aug 6, 2018) (read: China's $50B Tariff Backlash Puts These ETF Areas in Focus).
ELEMENTS Rogers Intl Cmdty Agriculture TR ETN (RJA - Free Report)
This broad fund has 13.6% weight in corn and 13.6% focus on wheat. The fund has lost about 3.5% in the past three-month period but has added about 2.7% in the past month.
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