The lone wheat exchange traded fund slipped to a new low Monday as prices on the soft commodity plunged to their lowest in a decade on huge buildups in inventory around the world.
The Teucrium Wheat Fund (NYSEArca: WEAT) fell 1.9% on Monday. WEAT has declined 20.0% year-to-date.
Meanwhile, CBOT wheat futures were down 2.6% to $3.9675 per bushel, the first time it has traded below $4 a bushel since 2006.
[related_stories]Driving down the price of wheat, large harvests are piling up in large growing regions across the world on extensive planting and favorable weather. The International Grains Council recently raised its global wheat production forecast to a record 743 million metric tons, or up 1% year-over-year, reports Gregory Meyer for the Financial Times.
The recent U.S. winter wheat harvest came in at 45 million metric tons, or up 21% year-over-year. Merchants are also running out of room in silos and have been forced to let harvests sit outdoors.
In Canada, the government forecasts the second-largest wheat crop in 25 years of 30.5 million metric tons.
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Russia is set to become the largest wheat exporter this year after harvesting more than 70 million metric tons, and the country is coming up against storage concerns as well.
“The world can source wheat from the northern hemisphere or southern, eastern or western. That increases the food security of the world a whole heck of a lot,” Ken Stein, co-manager of Kottke Commodity Capital, told the Financial Times.
Some may believe that the increased production may help diminish prices for end consumers, which may create more demand. However, Abdolreza Abbassian, grains economist at the UN Food and Agriculture Organization, argued that demand only tends to track population growth. Wheat production is expected to outpace consumption by 10 million tons this year.
However, some observers warn that the supply of high-quality wheat are less than people expect, which may open the wheat market for a potential rebound.
“While total supply gets the most attention, wheat’s real value is as a functional food ingredient, not as a bulk commodity,” US Wheat Associates said in a note. “When you dig a bit deeper, the total supply of milling quality wheat is much different — and it is tightening.”
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Moreover, after the recent sell-off, WEAT is showing a relative strength of 22.05, which suggests that the market is oversold – the relative strength index measures the speed and and change of price movements, with readings below 30 signaling an oversold market.
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Teucrium Wheat Fund