Wheat
Chicago Soft Red Winter (SRW) Wheat futures began trading at the Chicago Board of Trade in 1877. Wheat has been cultivated around the world for more than seven centuries, and sustains more of the world’s population than any other grain.
Wheat is grown in much of the U.S., and the diversity of growing conditions in the country makes it possible to produce many different varieties of wheat, classified by their:
Winter wheat, which accounts for approximately 70% of the wheat grown in the U.S., is planted from mid-August through October. Harvest takes place from mid-May to mid-July of the following year.
Hard red spring wheat is mostly grown in north central states, such as North Dakota and Minnesota, where the winters are too severe for winter wheat production. Planting takes place from April through May, with harvest occurring from mid-August to mid-September.
Contract size = 5,000 bushels
Tick value = 1 cent / $50
Minimum tick value = 0.25 / $12.50
Wheat is mainly used for flour and baking.
Wheat is grown in much of the U.S., and the diversity of growing conditions in the country makes it possible to produce many different varieties of wheat, classified by their:
- planting time: winter or spring
- protein content: “hard” for high protein wheat and “soft” for lower protein wheat
- kernel color: red or white
Winter wheat, which accounts for approximately 70% of the wheat grown in the U.S., is planted from mid-August through October. Harvest takes place from mid-May to mid-July of the following year.
Hard red spring wheat is mostly grown in north central states, such as North Dakota and Minnesota, where the winters are too severe for winter wheat production. Planting takes place from April through May, with harvest occurring from mid-August to mid-September.
Contract size = 5,000 bushels
Tick value = 1 cent / $50
Minimum tick value = 0.25 / $12.50
Wheat is mainly used for flour and baking.
The top exporters of wheat in the world are:
1. Russia
2. Europe
3. Canada
4. USA
1. Russia
2. Europe
3. Canada
4. USA
Things effecting wheat prices?
- Weather - The weather has a significant impact on crop yields and thus overall agricultural production. The wrong type of weather at the wrong time in the planting cycle, even if not prolonged or extreme, can also adversely affect the production of certain crops.
- Energy costs - Higher energy costs imply higher costs of production for wheat and higher costs of transporting wheat to market. Energy makes up a significant part of operating costs for most crops. This is especially true when considering indirect energy expenditure on fertilizer because the production of fertilizer is extremely energy intensive, requiring large amounts of natural gas. For some crops – including wheat – the combined cost of energy and fertilizer make up more than half of the total operating expenses in the US.
- Substituting - Because wheat and other grains are close substitutes an increase in the price of corn for example could lead to a corresponding rise in the price of wheat. If the price of corn rises too far then farmers begin to switch from corn to wheat, reducing the supply growth of wheat thus increasing price. Vice versa, consumers might switch in the opposite direction increasing their demand for the relatively cheaper corn crop, should wheat prices get to high.
- Planted Acreage and Expected Yield - Decreases in acreage or yield for a specific crop means that production drops and supply decreases, a decrease in supply is bullish for crop prices. Vice versa, if acreage and yields are increased then production is increased and so is supply, which would be bearish for crop prices. This information is published monthly in the USDA's crop progress report and also in the WASDE.
- Government Intervention - Governments employee various measures to maintain farm prices and incomes above what the market will otherwise yield. They include tariffs or import levies, import quotas, export subsidies, direct payments to farmers, and limitations on production. Tariffs and import quotas can be effective only if a country normally imports some of its supply. Export subsidies result in higher prices to domestic consumers than to foreign purchasers; their use requires control over imports to prevent foreign supplies from entering the domestic market and bringing prices down. Direct payments to farmers have been used to maintain prices to consumers at reasonable levels, while assuring farmers a return above world-market levels. Limitations on production with things like acreage control programs, intend to reduce supply and thus increase prices.
- Exchange rates (U.S. Dollar) - Like most internationally traded commodities corn is priced in US dollars. At its most basic a decrease in the value of the US dollar relative to a commodity buyer’s currency means that the purchaser will need to spend less of their own currency to buy a given amount of the commodity. As the commodity becomes less expensive demand for the commodity rises, resulting in an increase in the price and vice versa. A weaker dollar can also act as a disincentive to producers to increase output.
- Global stocks - Stocks (otherwise known as inventories) act as form of buffer for both producers and consumers of wheat. Typically, falling stock levels occur if demand increases faster than supply, resulting in higher wheat prices. Falling stock levels may, however, make the wheat market more vulnerable to an unanticipated disruption to supply or a sudden increase in demand.
