Agro Sector Ideas

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>>> Is It Time to Invest in Wheat ETF (WEAT)?


Zacks

Sanghamitra Saha

June 12, 2023


https://finance.yahoo.com/news/time-invest-wheat-etf-weat-170000918.html


The recent surge in wheat prices has caught the attention of investors looking for potential opportunities in the commodities market. The Teucrium Wheat ETF WEAT gained about 2% on Jun 8, 2023, reflecting the growing market interest in this agricultural commodity.

Wheat Production Areas and Optimal Weather Conditions

To make informed investment decisions regarding wheat ETFs, it's crucial to understand the major wheat-producing areas and the weather conditions favorable for wheat production. The top wheat-producing countries include Russia, Ukraine, the United States, India, and Canada.

Investors should note that wheat thrives in temperate climates with adequate moisture during critical growth stages. The ideal weather conditions for wheat cultivation include cool temperatures during germination and early growth, followed by warmer temperatures during grain fill. Sufficient rainfall or access to irrigation is also crucial to support healthy wheat growth.

In this article, we will explore the factors driving the rise in wheat prices and analyze whether it's a good time to buy a wheat ETF.

Collapse of the Kakhovka Dam

One of the primary factors contributing to the recent increase in wheat prices is the collapse of the Kakhovka dam and hydroelectric power station in Ukraine. This unfortunate event occurred in a region of the Dnieper River under Russian control, raising concerns about Ukraine's ability to access affordable supplies of wheat.

Ukraine is a major exporter of wheat, barley, corn, and sunflower oil, with a significant portion of its produce being shipped to developing nations in Africa, the Middle East, and parts of Asia. The disruption in the supply chain has renewed market fears about the stability of Ukraine's food exports, leading to a spike in global wheat prices.

Drought Conditions in the Midwest

Another factor impacting wheat prices is the prevailing drought conditions in the Midwest, particularly in Kansas, which happens to be a significant wheat-producing region. While the market hasn't shown significant concern about the drought yet, if the dry spell persists, it could have a severe impact on the wheat crop supply. Drought can lead to lower yields and poorer quality of wheat, potentially driving up prices further.

The underlying wheat futures 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 second-to-expire contract, the third-to-expire contract and the contract expiring in the Dec. following the expiration month of the third-to-expire contract. The fund charges 22 bps in fees.

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