A severe drought has hit a major wheat-producing country, putting a severe crimp on the global supply of wheat. As a result, agriculture exchange traded funds (ETFs) are going through a growth spurt. But is the situation as dire as some believe? The USDA doesn’t seem to think so.

The U.S. Department of Agriculture stated that the majority of cotton, corn, peanut, rice and wheat crops are in fair to excellent conditions, according to iStockAnalyst. Russia, on the other hand, already announced that it would reduce exports as a result of the prolonged drought. Projections of high yields domestically may diminish price gains in U.S. markets. [Why Investors Like Agriculture ETFs.]

Wheat is up 60% this year after the export ban by Russia, reports Liam Denning for The Wall Street Journal. Meanwhile, corn has gained about 10%. Demand for corn may surge if limits on the proportion of corn-based ethanol blended in U.S. gasoline are changed. Additionally, higher wheat prices could force livestock farmers to switch to corn feeds. However, if U.S. farmers switch over to wheat crops, corn supply would diminish. [ETFs to Play the Most Important Meal of the Day.]

Recently in Chicago, wheat for September delivery traded down after traders weighted the possibility of other countries enacting export restrictions, reports Andrew Johnson Jr. for The Wall Street Journal. Observers expect Kazakhstan and Ukraine to follow Russia’s lead and reduce exports. Analytical firm F.O. Licht projects 2010-11 global wheat production to be 645.71 million tons, or down 1.6% from July estimates. [Wheat ETF Rally May Not Be Entirely Whole.]

For more information on agriculture, visit our agriculture category. According to our ETF Analyzer, there are 64 commodity-focused ETFs, including these:

  • PowerShares DB Agriculture (NYSEArca: DBA): Wheat is 12.6%. Corn is 11.8%.
  • iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG): Agriculture accounts for 16% of the fund.
  • PowerShares DB Commodity Index Tracking (NYSEArca: DBC): Wheat is 5.6%. Corn is 5.7%.
  • Teucrium Corn Fund (NYSEArca: CORN): Tracks a basket of corn futures.
  • PowerShares DB Agriculture Long ETN (NYSEArca: AGF): Tracks an index of corn, wheat, soybean and sugar futures.
  • iPath DJ AIG Grains Total Return Sub-Index ETN (NYSEArca: JJG): Tracks a basket of corn, wheat and soybean futures.
  • ELEMENTS MLCX Grains Index Total Return ETN (NYSEArca: GRU): Tracks futures contracts on soybeans, soy meal, wheat and corn.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.