What’s Bad for Wheat Could Be Good for Agriculture ETFs

Crop scientists have discovered a new threat to wheat crops within the United States, leading to a race to be the first to breed a resistant wheat plant, before there is trouble. Any outcome could have a big effect on related agriculture ETFs.

Crop scientists fear the Ug99 fungus could wipe out more than 80% of worldwide wheat crops as it spreads from eastern Africa. It’s the number one threat to the world’s most widely grown crop.

Word is that the fungus has already traveled the Red Sea, and experts are saying that Northern India and Pakistan are next. Karen Kaplan for The Los Angeles Times reports that the wind will transfer it to China and Russia, and eventually North America, unless it travels by human first.

Fear that the fungus will cause widespread damage has caused short-term price spikes on world wheat markets. Although famine has been avoided, it is still a possibility in the long run. The major goal is to create a new wheat variety that is immune to Ug99. Estimates are that 19% of the world’s crop is already in danger.

These fears aren’t just idle ones. There have been very damaging past outbreaks. The so-called Stem rust destroyed more than 20% of U.S. wheat crops several times between 1917 and 1935, and losses reached nearly 9% twice in the 1950s. The last major outbreak was seen in 1962, which took out 5.2% of U.S. crops.

• PowerShares DB Agriculture (DBA): up 0.80% year-to-date; holds 25% wheat

• ELEMENTS MLCX Grains Index ETN (GRU): down 0.5% year-to-date

Comments

[Mad Hedge Fund Trader]

I think so. Here’s a follow up on my call to buy wheat yesterday (www.madhedgefundtrader...). There is a new fungus out there called UG 99 which has the potential to wipe out 80% of the world’s wheat crop. It has been doing damage to crops in Africa for the last ten years, and if it escapes to Asia, where wheat is a major part of the diet, the results could be disastrous. Sygenta (SYT) is the world leader in producing the fungicide for this particularly nasty form of wheat rust, and has already seen its stock double over the past eight months. Unfortunately, ridiculous European fears about genetically modified crops and “Frankenfoods” have discouraged further research in the field. There is no money in wheat, so companies like Monsanto and Du Pont focus their attentions on rice, soybeans, and canola, which see more processing and are therefore less subject to the EC restrictions. Needless to say, if UG 99 makes it to Asia, or Heaven forbid, here, the effect on prices would be unimaginable. See the long term bull case for the grains at www.madhedgefundtrader.... There will be no food bailout. The Fed can’t print calories.

2009 Jun 17 05:56 AM

[Asitoughtobe]

Hard to think about massive wheat shortages, and it's affect on the world though I'll be happy with the price increases that should befall DBA as a result of such an event since they have 25% of the ETF invested in July and Dec wheat!

Let's see where the roll is in July! Any thoughts?

Healthy Trading?

2009 Jun 17 08:39 AM

[Bartlesby]

Tom - could you please state your sources for your comments that the fungus "could wipe out more than 80% of worldwide wheat crops" and that "Estimates are that 19% of the world’s crop is already in danger."

Also the JJG is an ETN that is equal-weighted between only corn, soybeans and wheat futures. Thus a move in wheat prices will have a greater impact on the JJG than the DBA or the GRU.

2009 Jun 17 04:03 PM

[johnbee]

Canada is also experiencing wheat growing problems with much of the crop likely to be lost due to poor weather conditions this year.

2009 Jun 18 06:37 AM

[Commodities are US]

wow what an article - riddled in claims and statistics, completely void of any evidence. Karen Kaplan of the LA TIMES?

CBOT wheat has just lost nearly 20% from its May highs and is a full carry market without bidders, nor does the US have any ability to compete in the export market for SRW....where is the exciting story in wheat other than money flow?? certainly not in UG99 fungus

2009 Jun 18 06:41 AM

[cameroni]

I follow the Saskatchewan crop reports.

Because Saskatchewan is one of the globes leading producer regions of cereals, grains and oilseeds and it is primarily an export crop region it is one of the single most important reports to indicate early warning signs of autumn price changes.

Signs are pointing to a disappointing harvest this year.

Crop damage in that province would have global repercussions. The threat of a new fungus is not taken lightly there. For the current year though the major concerns are dry conditions, a late planting resulting in crops being overdue and some frost/snowfall that also delayed planting. The main concern though is that the majority of crop is well behind schedule and stressed by dry conditions. With a short growing season and risk of early frost the outcome is always a big question mark.

You can access the current report at:
www.agriculture.gov.sk...

Historical reports are available at:
www.agriculture.gov.sk...

2009 Jun 19 12:12 AM