Hard Red Winter Wheat Futures on CME Globex
You realise how important a role wheat futures play in world food dynamics when you see the latest TV news on the unfolding global food crisis. The futures market for wheat is centred on the Chicago Mercantile Exchange and Chicago Board of Trade, and traded using the new CME platform.
The CME Group effectively sets prices for around 80% of the world wheat market, through the activities in the futures and options market.
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Commentators suggest that speculation in these commodity markets is responsible for soaring world wheat prices, casusing hardship in particular in developing nations such as in sub-Saharan Africa.
It is very serious when you see that people in Ghana are not able to afford to buy bread and flour sales are collapsing. To what extent is it due to bad harvests and adverse weather conditions?
Just consider that a drought in Australia causes a loss of up to half the wheat crop, while in Canada about a third of the crop was lost because the wheat was damaged by excess water.
Yet the commodity exchanges like CME and the Australian Securities Exchange are only reflecting the price signals sent by those producers and end users hedging their prices forward.
There ar other factors such as the agricultural policies of governments and continents such as the European Union’s CAP which distort world prices of wheat and other grains.
Trading Wheat Futures
Along with corn and soybeans, wheat is a major agricultural commodity and watching the movement of these three grain futures can give an indication of future expectations in global food markets.
Historically, the Kansas City Board of Trade (KCBT) had a profound influence on wheat markets not just in the US but also as far afield as Australia and Argentina.
The KCBT has been operating for over 150 years and it is the largest market for Hard Red Winter Wheat Futures.
It is the main ingredient for making bread worldwide, it accounts for about 45% of US production and all wheat exports from that country.
Just think that in 2006 the KCBT traded over 4.75 million wheat futures contracts, which is roughly equivalent to 23.8 billion bushels.
Futures contracts for this wheat are now the international benchmark for wheat prices and they are traded on the CME Globex electronic trading platfrom.
Though the futures contract were originally traded by open outcry at the KCBT, trading has migrated over to the CME electronic platform.
The contracts on CME Globex are for 5,000 bushels with a tick size of 0.25c a bushel, which implies $12.50 per contract. Ticker symbols are: Open Auction: W, Electronic : ZW. There are also mini wheat futures contracts whose symbols are: Open (YW), Electronic (ZW).
Grades of wheat traded include Hard Red Winter Wheat, graded No.2 (bread), No.2 soft red winter (used in cookies and pastries), and No.1 soft red winter and No.1 hard red winter. Crop years for wheat are July to May, while futures contracts end in July, September, December, March and May.
Last trading day is the business day prior to the 15th of the calendar month in which contracts expire. Delivery is either at Kansas City or Hutchinson, Kansas.
Traing hours on CME Globex are 6.00 pm to 6.00 am and 9.30 am to 1.15 pm, Sunday to Friday, while open auction is from 9.30 am to 1.15 pm, when the two platforms trade side-by-side.
Margins will vary from time to time depending on conditions in the markets but at the time of writing are $6,075 per contract for the initial margin and $4,500 per contract for maintenance margin.
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