General presentation of wheat:
Wheat is of course a cereal that is consumed throughout the world but its use is not confined to direct consumption by humans. In fact, the amount of wheat used by the agro-alimentary industry represents only around 58% of the total wheat production. A large amount of the wheat produced is used for creating biofuels or other derivatives destined for industry.
The 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 U.S.A, Russia and Canada. France is actually the fourth largest producer of wheat worldwide.
Due to its indispensability and high consumption throughout the world, wheat is a highly volatile asset that is therefore extremely interesting to trade.
Some advice on investing and trading in wheat
Firstly it is important to remember that the market on which the exchanges relative to wheat or other agricultural commodities take place is the CBOT or Chicago Board of Trade.
When one trades in wheat online, we do not talk about grammes or kilos but bushels. This unit of measurement specific to the cereal market represents around 27.21 kilos of wheat. Another particularity of wheat trading is that the quotation is not displayed in American Dollars but in American Cents. Therefore, a quotation of 600 represents a quotation of 6 dollars per bushel.
On the futures market, the lots exchanged are around 5.000 bushels but there is also another way to trade wheat with lesser volumes. This solution is through the use of indexed certificates such as ‘subjacent’.
What are the advantages in trading wheat?
What attracts many traders to the wheat market is the rising trend currently experienced by this commodity. If we look closely at the history of wheat prices, we see that although the general trend over the long term remains positive, the market has undergone several successive phases.
From 1999 until 2005, wheat prices remained more or less stable at around 300 cents per bushel. But suddenly, the growth of this market experienced a formidable rise and in 2008 reached a record of 1,334 cents per bushel.
But this period was immediately followed by a correction of the prices which fell to 500 cents per bushel. This pinnacle in the price of wheat was initially attributed to a sudden industrial interest for this natural commodity, especially with the advent of bio ethanol. But the reasons for this increase were also linked to particular climatic conditions which strongly impacted the producers.
Quotes for the wheat price:
Wheat on the stock market, that is wheat on which we can speculate, is exchanged on the OTC market as well as regulated markets. The major markets that trade in wheat are the CBOT (Chicago Board of Trade) and the related CME (Chicago Mercantile Exchange).
The contracts enabling the buying and selling of wheat worldwide are the futures contracts although they can also take the form of options.
The indicators to follow for wheat trading:
Several indicators may assist wheat traders to determine the market direction of the trend over the medium to long term. The elements that most influence the price are as follows:
- The supply and demand are of course the factors to be favoured in your technical analysis of the wheat price.
- The climatic conditions that directly determine the production level.
- The stock levels, to be compared to the supply and production figures.
- The commercial policies of the various countries such as assistance with the import or export and the level of taxes implemented.
- Finally, the development of the world population constitutes a secondary strong factor that influences the price of agricultural commodities such as wheat and other cereals over the long term.