Wheat Commodity Trading, Gain Grain Market Exposure
With growing use of soybeans and corn as biofuel sources, wheat commodity trading is becomes a potentially more exciting sector of the commodities universe.
As the second most widely produced cereal crop in the world after corn, wheat is closely followed by producers and the wide range of end users, for hedging purposes and for traders looking to make profits.
The top 5 producers in the world are China, India, USA, Russia and France.
With recent panic over rises in global food prices once again, wheat prices reached an all-time high in Spring 2008, and because of poor harvests in other countries, US exports have increased around 30%.
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Added to the concerns over food prices is the growing use of grains as a source of ethanol for biofuels to displace petroleum based gasoline. This may lead to farmers switching land to grow corn and soybean, so reducing the acreage available for wheat. And remember wheat stocks in 2008 are at 60 year lows. Wheat production in the USA
The main uses of wheat are for flour, livestock feed and brewing, and the main US wheat growing states are Kansas, North Dakota, Texas and Oklahoma. There are several different types of wheat including hard red winter, the largest US crop (around 45% of total production) and used in bread, soft red winter which is used in cookies and pastries, and spring wheat.
So how can you follow what is happening in wheat markets and use this information to inform your wheat commodity trading decisions?
The United States Department of Agriculture (USDA) produces a number of reports that cover wheat planting projections for the US as well as statement of stock levels along with similar figures for corn and other grains, and soybean.
Prospective Plantings Report
This is a comprehensive report which is published by the USDA around March and is a survey of farmers. The report shows answers to questions on how many acres farmers intend to plant for wheat as well as the other crops. Remember the figures which show each state are only indicative and the outturn can be different due to numerous factors such as a farmer changing his plans, unusual weather patterns and crop infestation.
As an example, the Prospective Plantings Report March 2008 showed that all wheat acreage planted in 2007 was 60.2 million (m), while estimated acres to be planted for 2008 was 63.8 m, an increase of 6%.
Among the main producing states for wheat, Kansas was estimated to have 9.9 m acres planted (-5%), Montana to come in at 5.78 m (+12%), North Dakota at 9.2 m (+7%) and Oklahoma at 5.7 m acres, a fall of 3%.
From a wheat commodity trading perspective, other things being equal this would suggest that wheat futures prices could fall over the coming months.
The Prospective Plantings Report also shows similar data for soybean, barley, oats , corn and other crops, with the US total and broken down state by state.
Also bear in mind that professional analysts will produce their reports on projected crop plantings, and if there is divergence between the USDA report and these other forecasts, this could also lead to a notable move in wheat futures on CBOT.
So, for example, if wheat acreage estimates are higher than what analysts have forecast, then this would be likely to depress wheat prices on the various commodity exchanges.
This USDA report is issued around the 10th of each month and provides the latest estimates for the use (demand) and production levels (supply) of wheat and other crops such as corn, rice, cotton, and soybean both in the USA and the rest of the world. For example, the USDA monthly report for August 2008 sees higher production and use of wheat for 2008/9, with world wheat production increasing by 6.51 million metric tons to 670.75 million metric tons from the previous month’s report on the back of higher forecast yields and bigger harvest acreage. Over the same period US all wheat production estimates increased by 50,000 metric tons to 67.02 million metric tons. Grain Stocks Report This USDA report gives information on the latest stock levels of all wheat and other grains in the USA and the world. As an example, the June issue points out that all wheat stocks were at 306 million bushels on 1 June 2008, a drop of 33% on 1 June 2007. Information on other agricultural and soft commodities CornSoybeanRiceSugarCoffeeCocoa Trading wheat on the commodity exchanges Combining the above data with commodity trading chart information and your chosen trading system is a good way of making informed decisions as part of your commodity trading plan.
As an alternative to open outcry you can now use the electronic route via CME Globex. Futures for soft red winter wheat, hard red spring and spring wheat are traded on CBOT and MGE. As well as trading wheat futures contracts on CBOT you could gain exposure to the grains through an ETF which tracks the sub-sector of an agricultural commodity index containing the main grain commodities. The future of wheat commodity trading looks exciting because the interest in these contracts is increasing given that electronic trading has increased substantially. Related articles: With the challenges presented by a growing world population and the pressure from demands for higher acreage for corn and soybean to supply alternative fuels for transport, the wheat sector looks very promising for commodity traders going forward.
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