Risk Warning: Your Capital is at Risk.
In this guide to trading wheat, we’ll explain how and where you can trade this popular commodity with a list of regulated brokers that are available in . We also discuss why some traders choose to trade wheat and what experts say about trading it.
In a rush? If you want to get started trading wheat as soon as possible, here are brokers available in to consider:
How to Trade Wheat
Wheat traders have several ways to speculate on wheat prices:
- Shares of wheat companies
- CFDs (unavailable in USA)
Shares of Wheat Companies
Gaining direct exposure to wheat through shares of companies is difficult. There are no public companies that are pure-play wheat producers.
However, traders can purchase shares of agribusiness companies such as Archer Daniels Midland Company and Bunge Ltd that give them some limited exposure to wheat prices.
Both Archer Daniels Midland Company and Bunge Ltd. have diversified international businesses that span numerous products and industries. Although not pure wheat plays, these companies generally benefit from higher agricultural prices.
Archer Daniels Midland
|US food processing and agricultural commodities trading company||New York (NYSE)||1902|
|Global agribusiness and food company incorporated in Bermuda||New York (NYSE)||1818|
Please note, this is an example – not a recommendation.
Exchange-traded funds (ETFs) trade as shares on exchanges in the same way that stocks do. There is currently only one pure-play wheat exchange-traded fund (ETF), the Teucrium Wheat Fund.
However, there are several ETFs that invest generally in the agricultural sector including the following:
|Teucrium Wheat Fund||PowerShares DB Agriculture Fund||iPath Bloomberg Grains SubTR ETN||iPath Bloomberg Agriculture Subindex Total Return ETN|
Please note, this is an example – not a recommendation.
The Chicago Board of Trade (CBOT), a subsidiary of the Chicago Mercantile Exchange (CME), offers a wheat futures contract that represents 5,000 bushels or about 136 metric tons.
The contract also trades during and after regular market hours on the CME Globex exchange. Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions.
Wheat futures contracts expire on the 15th day of March, May, July, September and December. At expiration, traders must either accept physical delivery of the commodity or roll their positions forward to the next trading month.
Futures trading requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
The CBOT offers an options contract on wheat futures. Options, also a derivative instrument, employ leverage to trade commodities.
As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money. Options buyers pay a price known as a premium to purchase contracts. An options bet succeeds only if the price of wheat futures rises above the strike price by an amount greater than the premium paid for the contract.
Therefore, options traders must make correct determinations about the size and timing of a move in wheat futures in order to profit from their trades.
One way to trade in wheat is through a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on wheat prices without purchasing ETFs, futures, options or agribusiness shares. The value of a CFD is the difference between the price of wheat at the time of purchase and the current price. CFD traders, therefore, have direct economic exposure to wheat prices.
The advantage of CFDs is that traders can have exposure to wheat prices without having to manage complicated futures or options positions.
IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.
Where Can I Trade Wheat?
Start your research with reviews of these regulated brokers available in that offer trading on wheat and other agricultural commodities.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Reasons to Trade Wheat
Some traders speculate on wheat prices for the following reasons:
- Inflation hedge
- Speculate on demand growth
- Portfolio diversification
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
How Does Wheat Act as an Inflation and Weak US Dollar Hedge?
Wheat is a way to bet on a weak US dollar and higher inflation. Since commodities such as wheat are priced in US dollars, the performance of the world’s largest economy plays a crucial role in its pricing.
In recent years, the US Federal Reserve Banks have supported easy monetary policies that have kept the US dollar weak. US policymakers need this weakness to bolster US exports and support consumer borrowing and spending. A continuation of these policies could spur inflation and will very likely help wheat prices.
Speculating on Demand Growth
Wheat has many favorable properties that could support continued global demand growth. It’s a hearty crop that’s easy to grow. Unlike rice, it doesn’t require much water or labor. This could make wheat the grain of choice in developing economies across the world. Wheat also competes for acreage with corn.
If trends in biofuel production continue, there could be a shortfall in wheat supply and higher prices.
Most traders have the vast majority of their assets in stocks and bonds. Commodities such as wheat provide traders with a way to diversify their portfolios.
Should I Start Wheat Trading?
Traders who are bullish on emerging market economies might consider trading wheat. As these economies grow, they will require affordable crops that grow easily and can be used to produce a variety of different foods.
As consumption of meat grows in emerging markets, demand for wheat as a source of animal feed will climb as well.
However, fiscal hawkishness by the Federal Reserve accompanied by strength in the US dollar could depress commodity prices including wheat. Also, a reduction in biofuel demand could lead farmers to allocate more acreage to wheat and cause prices to fall.
You can also aid your research of a commodity’s potential market performance by getting up to date with other aspects of the agricultural sector. For example, this article shows the best-paying cities for agricultural workers in the US.
Finally, traders should understand that wheat is a commodity that is subject to the whims of the marketplace. A change in market sentiment toward agricultural commodities could send prices lower without a specific catalyst.
What Do Experts Think About Wheat?
Jim Rogers, who co-founded the Quantum Fund and created the Rogers International Commodity Index, sees agriculture as the commodities sector with the best potential. Rogers sees wheat as one of many agricultural commodities that should be watched closely in the coming years.
Robert Chesler, vice president of the foods group at Chicago-based INTL FCStone, agrees with this opinion. Chessler sees agricultural commodities, in general, attracting more money from traders. He cites the relatively low prices in this sector as the catalyst.
However, it is worth noting that some experts see China’s growing stockpile of grains as a possible overhang on the market.