Wheat is, of course, a cereal that is consumed throughout the world, but its use is not limited to direct consumption by humans. In fact, the amount of wheat used by the agri-food industry represents only about 58% of the total wheat production. A large part of the wheat produced is used to create biofuels or other derivatives destined for industry.
Wheat-producing countries are located here and there around the world, but it is the European Union that produces the most, followed by China, India, the US, Russia and Canada. France is actually the world’s fourth largest producer of wheat.
Due to its indispensable nature and high consumption around the world, wheat is a highly volatile asset and therefore extremely interesting to trade.
Some tips for investing and trading wheat
First of all, it is important to remember that the market in which exchanges related to wheat or other agricultural products take place is the CBOT or the Chicago Board of Trade to invest in wheat.
When one trades wheat online, we are not talking about grams or kilos, but about bushels. This specific unit of measure for the cereal market represents around 27.21 kilos of wheat. Another particularity of wheat trading is that the price is not shown in US dollars, but in US cents. Therefore, a quote of 600 represents a quote of 6 dollars per bushel.
In the futures market, the lots traded are around 5,000 bushels, but there is also another way to trade wheat with smaller volumes. This solution is through the use of indexed certificates as ‘underlying’.
What are the advantages of trading wheat?
What attracts many traders to the wheat market is the upward trend that this commodity is currently experiencing. If we look closely at the history of wheat prices, we see that although the overall long-term trend remains positive, the market has gone through several successive phases.
Between 1999 and 2005, wheat prices were more or less stable around 300 cents per bushel. But suddenly, the growth of this market experienced a tremendous increase and in 2008 it reached a record of 1,334 cents per bushel.
But this period was immediately followed by a price correction, which fell to 500 cents per bushel. This spike in the price of wheat was initially attributed to a sudden industrial interest in this natural product, especially with the advent of bioethanol. But the reasons for this increase were also related to particular climatic conditions that had a strong impact on producers.
Quotes for the price of wheat:
Exchange wheat, that is, wheat on which we can speculate, is traded both on the OTC market and on regulated markets. The main markets that trade wheat are the CBOT (Chicago Board of Trade) and the CME (Chicago Mercantile Exchange).
The contracts that allow the purchase and sale of wheat throughout the world are futures contracts, although they can also take the form of options.
Indicators to watch for wheat trading:
Various indicators can help wheat traders determine the market direction of the medium to long-term trend. The elements that most influence the price are the following:
- Supply and demand are, of course, the factors to consider in your technical analysis of the price of wheat.
- The climatic conditions that directly determine the level of production.
- Stock levels, which should be compared with supply and production figures.
The commercial policies of the different countries, such as import or export assistance and the level of taxes applied.
Finally, the development of the world population constitutes an important secondary factor influencing the price of agricultural commodities, such as wheat and other cereals, in the long term.
