A severe drought has hit a major wheat-producing country, putting a severe crimp on the global supply of wheat. As a result, agriculture exchange traded funds (ETFs) are going through a growth spurt. But is the situation as dire as some believe? The USDA doesn’t seem to think so.

The U.S. Department of Agriculture stated that the majority of cotton, corn, peanut, rice and wheat crops are in fair to excellent conditions, according to iStockAnalyst. Russia, on the other hand, already announced that it would reduce exports as a result of the prolonged drought. Projections of high yields domestically may diminish price gains in U.S. markets. []

Wheat is up 60% this year after the export ban by Russia, reports Liam Denning for The Wall Street Journal. Meanwhile, corn has gained about 10%. Demand for corn may surge if limits on the proportion of corn-based ethanol blended in U.S. gasoline are changed. Additionally, higher wheat prices could force livestock farmers to switch to corn feeds. However, if U.S. farmers switch over to wheat crops, corn supply would diminish. []

Recently in Chicago, wheat for September delivery traded down after traders weighted the possibility of other countries enacting export restrictions, reports Andrew Johnson Jr. for The Wall Street Journal. Observers expect Kazakhstan and Ukraine to follow Russia’s lead and reduce exports. Analytical firm F.O. Licht projects 2010-11 global wheat production to be 645.71 million tons, or down 1.6% from July estimates. []

Max Chen contributed to this article.

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