Grains commodity-related exchange traded funds are growing, with wheat leading the charge, as drought conditions damage crops across key growing regions.
The Teucrium Wheat Fund (NYSEArca:WEAT) jumped 17.4% over the past month and gained 8.3% in the last week.
Additionally, the diversified iPath Bloomberg Grains Subindex Total Return ETN (NYSEArca:JJG), which includes corn, soybeans and wheat, has increased 8.7% over the past month. The Teucrium Agricultural Fund (NYSEArca:TAGS), which takes an even exposure to sugar, wheat, corn and soybeans, was 11.4% higher for the month.
Supporting the rally in the grains market, wheat prices have soared as a worsening drought in the northern U.S. Plains and weakening crop conditions in Canada add to supply concerns.
“We have continued hot and dry conditions for spring wheat, particularly Montana and North and South Dakota — and the weather pattern is not changing,” Brian Hoops, president and senior market analyst at Midwest Market Solutions, told CNBC. “In fact, it’s intensifying as far as drought-like conditions. So the crop is being perceived as smaller and smaller.”
The dry conditions in areas of the Dakotas and Montana is expected to linger and there is also concerns over unfavorable conditions for growing across the border in Canadian wheat provinces like Alberta and Saskatchewan. Furthermore, the drought is also attributed to several lightning-related fires in the region.
“You’re going to have multiple days of 90- to 100-degree temperatures with no [precipitation]on an already really, really stressed crop,” Joe Lardy, research manager at CHS Hedging, a commodities broker in St. Paul, Minnesota, told CNBC. “And there’s just not any good substitution for spring wheat, either.”
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Wheat futures were recently under selling pressure, but it may be only attributed to some taking the time-honored tradition of profit taking.
“We went too far, too fast,” Brian Grossman, a market strategist at Zaner Group, told Fox Business. “A pullback like this is a healthy sign of a market. It’s an indicator that we’re getting near to the end.”
Nevertheless, crops are still under duress as conditions deteriorate. According to the U.S. Department of Agriculture, the proportion of spring wheat rated good or excellent dipped to 37% from 40% last week while winter wheat fell to 48% good-or-excellent from 49% a week earlier.
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