NEW YORK ( TheStreet) -- Fears that a supply shock could broaden the supply and demand imbalance in wheat have pushed the commodity to a 13-month high and there still may be opportunities for some strength in the wheat market.
Harsh weather conditions, such as a severe drought in Russia and excessive rainfall in Canada, have also provided the groundwork for positive price support for wheat. In fact, production in Russia is expected to decrease significantly in order to prevent prices from skyrocketing; that could lead to a decline in exports.
In fact, severe weather conditions have led the Food and Agriculture Organization to state that production of wheat in key producing areas is expected to decrease by at least 10 million to 15 million tons this year. As a result, some nations have already taken measures to slow down exports to meet domestic demand. One such nation is Ukraine, which has implemented stricter wheat quality controls to curb the potential of huge domestic price spikes.
Another factor that could lead to positive price support for wheat is increased demand from expected global population growth and increased purchasing power of individuals in emerging markets.For those looking to gain exposure to wheat, here are a few possibilities:
- PowerShares DB Agriculture (DBA), which allocates nearly 9.2% of its assets to wheat.
- PowerShares DB Agriculture Long ETN (AGF), which seeks to replicate an index that allocates nearly 25% of its assets to wheat.
- iPath DJ-UBS GrainsTR Sub-Idx ETN (JJG)
- ELEMENTS MLCX Grains Index TR ETN (GRU)
Written by Kevin Grewal of SmartStops i in Houston. Grewal has no positions in the securities mentioned.