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Wheat prices and related exchange traded fund weakened after the U.S. government announced higher-than-anticipated supplies. However, poor weather conditions around the globe could still support global prices.

Teucrium Wheat Fund (NYSEARCA:WEAT) was down 0.8% Wednesday after dropping over 3% Tuesday.

In the U.S. Department of Agriculture's monthly crop report, the USDA calculates that U.S. wheat stockpiles at the end of the crop year next May will be a greater-than-expected 754 million bushels due to lower wheat exports, which the government agency projects will drop 4.5% this year, The Wall Street Journal reports.

Wheat futures dropped 3.2% Tuesday, and continued to drip 1.2% Wednesday.

"It just kind of snowballed on itself," Jim Gerlach, president of A/C Trading Co., a Fowler, Ind., commodities brokerage, said in the WSJ article.

Analysts did not expect the USDA to make such a large cut in the exports forecasts.

"That caught people off guard," Chad Henderson, president of Prime-Ag Consultants Inc., a commodity brokerage, said in the WSJ article. "Everyone has been expecting, myself included, that we're going to start getting some export business."

Nevertheless, Australia, last year's second-largest exporter of wheat, estimates that wheat prices may jump 20% in the year through June as a result of droughts from the U.S. to Russia, Bloomberg reports. Russia, the third largest exporter, is experiencing its coldest winter in 20 years after drought conditions devastated its crops. Meanwhile, the U.S. is reeling from its worst drought in half a century, and Australia is also cutting its harvest and export estimates after dry weather conditions.

"Price movements in the second half of 2012-13 are expected to be closely linked to the harvest outcomes of major exporting countries in the southern hemisphere, such as Australia and Argentina, and seasonal conditions for plantings of the 2013-14 wheat crop in the northern hemisphere," the bureau said in the article.

Abdolreza Abbassian, an economist at the FAO, warns that market may be "underestimating the problems" in wheat supplies.

Teucrium Wheat Fund

(click image to enlarge)

Max Chen contributed to this article.

Source: Wheat ETF Lower On USDA Forecast