Wheat ETF’s Inflows Soar as War in Ukraine Intensifies

‘Worst case scenario’ increasingly likely, analyst warns.

The Teucrium Wheat Fund (WEAT) ETF had inflows in the past month totaling more than 10% of its assets, as the escalating war in Ukraine further raises investors’ concerns about the commodity’s scarcity. 

The $192 million WEAT fund had $21 million in inflows over the past month, up from $400,000 in outflows in the previous month and nearly $93.7 million in outflows over the same period last year. 

The ETF had over $461 million in inflows in the first half of 2022 as Russia’s invasion of Ukraine caused investors to fear the worst. Following a deal to allow the export of Ukrainian wheat in July 2022, $193.7 million flowed out of the fund in the second half of the year. 

The fund is down 17% so far this year, continuing a decline that began late in 2022. It rose more than 14% last month after Russia ended its export deal with Ukraine on July 18, though it fell in the past week, bringing one-month returns to around 3%.  

“This is a headline trade,” said Jake Hanley, managing director and portfolio strategist at Teucrium, who blamed news coming out of Russia and Ukraine for the inflows and price gains. 

Despite that, the overall availability of grain is unlikely to be majorly affected, he said. That’s because Ukraine comprises less than 5% of global wheat exports, and some grain can likely still be shipped overland rather than going through Russia’s naval blockade. 

The current measure of grain supply and demand, the stocks-to-use ratio, is somewhat lower than its five-year average, but grains prices spiked in July to significantly above 2012 levels, when supply was far tighter, indicating fear rather than underlying supply and demand drove the spike.  

‘The Worst Case Scenario’ 

Availability may be further affected by Russian attacks on efforts by Ukraine to ship grain on the Danube River, but due to the size of Ukraine’s exports, the affect is limited. What could turn all of this on its head is if the war disrupts Russia’s export of wheat.  

That scenario has become more likely. The Russian defense minister said on Aug. 1 that Ukraine had attacked its shipping through the Black Sea, although Ukraine has denied any attacks on civilian ships.  

Russia makes up 20% of global wheat exports, so disruption of its shipping through the Black Sea could cause enormous disruption to wheat availability.  

“That’s the worst case scenario,” said Hanley. “There wouldn’t need to be a complete stoppage of exports for this to have an effect. If there are attacks on Russian shipping, then insurance rates skyrocket, vessel owners are unsure if they want to sail, Russia needs to provide naval escorts for its shipping—major disruption.  

He added that prices could rise to their 2022 highs if this happens, about double current prices.  

“We’re not there yet, but the worst-case scenario is more likely,” Hanley said. 

Contact Gabe Alpert at [email protected]