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Wheat Bear Market: Blame a Peace Seeking Russia and Good Weather

NEW YORK (TheStreet) -- Wheat prices moved into bear market territory this week, with dissipating winter storms in the U.S. and rather strife between Russia and Ukraine cited as the main catalysts. The improved outlook has not caught up with farm machinery makers such as Deere  (DE) and Caterpillar  (CAT).

The U.S. Department of Agriculture said Wednesday that global wheat output would increase to 701.6 million metric tons this year from the 697 million forecast last month as production outside the U.S. increases.

The report spurred wheat futures for July delivery to fall to $5.8875 a bushel, a more than 20% decline from its highs of $7.44 a bushel in May.

The USDA report deviates widely from the sentiment wheat speculators felt at the beginning of the year. In January, wheat prices were bid higher as speculators saw political turmoil in Ukraine and severe winter storms in the U.S. as reasons global output would decline in 2014.

The winter storms lasted much of the first quarter, and tensions remained elevated between Russia and Ukraine for many months, but for the most part, optimism for the future has picked up.

Summer weather is expected to be a mix of rain and sunshine with warmer temperatures throughout the U.S. This should repair some of the winter damage and increase U.S. yields out by September.

A more impressive story, however, has been the drastic turnaround in sentiment regarding Russia.

After Ukrainian President Viktor Yanukovych was exiled from the country for his ties to Russia, and Crimea was annexed from Ukraine, many believed a full-on war was imminent.

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