Why is wheat important to traders?
Wheat has been one of the most important food crops used across the globe for centuries. Today, it is one of the most widely produced agricultural commodities on a per-volume basis, known for its ability to grow quickly and thrive in different environments. Moreover, due to its high protein content and overall nutritional value, wheat remains one of the most consumed grains worldwide.
The crop comes in several varieties, with climate and soil conditions determining the types grown in different locations.
Investing in agriculture is often seen as a good long-term bet, especially when it comes to food staples like wheat. Regardless of the political or economic situation, everybody needs to eat. And since most of the things people eat come from the farm, soft commodities are one of the lifeblood of the economy, with wheat commodity prices playing an important role in the market.
As emerging economies need more food to feed their growing populations, global wheat production has increased steadily in recent years. Besides, as consumption of meat grows in emerging markets, demand for wheat as a source of animal feed is also set to rise. These factors ensure that wheat will remain an important food staple and a valuable commodity in the foreseeable future, with its widespread use and international trade ensuring liquidity on the market.
Unlike some other commodities that are dominated by single producers, such as the Ivory Coast and cocoa, no one country dominates the wheat market. While China and India, the advanced developing countries, are the two largest producers, industrial nations such as the US, France and Canada can also boast of notable wheat production capabilities.
So, is wheat a good investment? Just like any other asset, trading wheat gives no guarantee of financial success. Traders should understand that this commodity is subject to the whims of the marketplace. Nevertheless, adding wheat to an investment portfolio provides exposure to an alternative asset class with different performance potential than standard stocks and bonds. For years, this agricultural commodity attracted the attention of international investors and traders seeking to add some substantial diversification, as well as growth, to their portfolios.
Wheat is traded in options and futures contracts on the Chicago Board of Trade (CBOT) and the Intercontinental Exchange (ICE).
Wheat market trading hours
The Intercontinental Exchange provides the following trading sessions for wheat futures and options:
If you choose to trade wheat CFDs with Capital.com, the market is open Monday to Friday, from 08:25 to 16:28 (UTC). This gives you plenty of time to monitor the latest news and keep an eye out for any events that may affect short-term movements in the commodity’s prices.
You can follow the latest developments in the UK wheat price in real-time with our comprehensive live chart.
Why trade wheat?
There are several major reasons to trade wheat, however, the most common are the following:
Wheat has many favourable properties that could support the continued growth in its global demand going forward. Moreover, unlike rice, it is a hearty crop that does not require much water or labour. This could make wheat the grain of choice in developing economies around the globe. In addition, if global interest in biofuel production remains strong, it could lead to a shortfall in wheat supply and boost the commodity’s prices.
Commodities can serve as a safe haven in times of global economic uncertainty and market turbulence, providing traders with protection against inflation and declining fiat currencies.
Many traders tend to have the vast majority of their assets in stocks and bonds. In the meantime, the presence of wheat in an equity-only portfolio can lower the volatility due to the absence of a correlation between this commodity and other asset classes.
Speculation on wheat prices
Commodities may be highly volatile, experiencing wild price swings. Trading wheat CFDs is one way to try to profit from those dramatic price fluctuations.
Top wheat market businesses
One of the ways to invest in the wheat industry is to buy shares of a company that produces or sells the commodity. While there are no public companies that deal strictly in wheat, traders can still buy shares of agribusiness firms like Bunge Ltd. (BG) and Archer Daniels Midland Company (ADM) that give them some level of exposure to wheat prices. Although not pure wheat plays, such companies generally benefit from higher agricultural prices.
Savvy traders often suggest investing in more than one company, in order to hedge your portfolio and avoid having all your eggs in one basket.
How to invest in wheat CFDs?
If you are searching how to trade wheat, one of the easiest and most popular ways that you could consider is trading the commodity with CFDs.
A contract for difference (CFD) is a financial contract, typically between a broker and an investor, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade. You are more liquid when you purchase CFDs as you are not tied to the asset: you have merely purchased the underlying contract. Therefore, investing in wheat CFDs saves you the inconvenience of buying and owning the commodity physically.
In addition, CFDs give you the opportunity to trade wheat in both directions. Regardless of having a positive or negative view of the wheat market forecasts, you can try to profit from both upward and downward future price movement.
You can either hold a long position, speculating that the wheat market price will rise, or a short position, speculating that the price will fall. This is considered a short-term investment, as CFDs tend to be used within shorter timeframes.
Trade Wheat Spot CFD
Looking for a reliable CFD trading provider to invest in wheat? If so, just spend three minutes of your time to sign up and start your journey of wheat trading with Capital.com. Try our award-winning trading platform or download our mobile app, which will become your smart CFD trading assistant.
Why trade wheat CFDs with Capital.com?
Advanced AI technology at its core: a Facebook-like news feed provides users with personalised and unique content depending on their preferences. If a trader makes decisions based on biases, the innovative news feed offers a range of materials to put her back on the right track. The neural network analyses in-app behaviour and recommends videos, articles, news to help polish your investment strategy. This will help you to refine your approach when trading wheat as a commodity.
Trading on margin: thanks to margin trading, Capital.com provides you with the opportunity to trade wheat CFDs and other top-traded commodities even with a limited amount of funds in your account.
Trading the difference: when trading a wheat CFD, you do not buy the underlying asset itself, meaning you are not tied to it. You only speculate on the rise or fall of the wheat trading price. CFD trading is nothing different from traditional trading in terms of strategies. A CFD investor can go short or long, set stop and limit losses and apply trading scenarios that align with his or her objectives.
All-round trading analysis: the browser-based platform allows traders to shape their own market analysis and forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS, and Android.
Focus on safety: Capital.com puts a special emphasis on safety. Licensed by the FCA, CySEC and NBRB, it complies with all regulations and ensures that its clients’ data security comes first. The company allows to withdraw money 24/7 and keeps traders’ funds across segregated bank accounts.
Wheat price history
According to the historical wheat price chart, the commodity hiked from around £90 per tonne in early 2010 to the £170 level in mid-2020. The market skyrocketed above £200 in 2011 and again in 2012, when the failed harvest in Russia and drought in the US curtailed production in two of the world’s largest wheat producers. Another significant spike happened in 2018, when the commodity soared to trade from £130 to £190 per tonne in a matter of a few months.
The UK wheat spot price started 2020 at £148 per tonne. In mid-February, Australia announced that its 2019/2020 production was expected to fall to its lowest in 12 years because of a drought. Driven by strong global demand and tight supply, the price surged to £157 per tonne by the end of March. However, due to the following uncertainty surrounding consumption in the wake of Covid-19 shutdowns, the market plunged back to £147 in mid-April.
The commodity then skyrocketed yet again to hit the £165 per tonne mark by the end of May 2020.
What affects the price of wheat?
Typically, the price of wheat is highly correlated with that of other grains, such as barley and corn. Most of the economic and trade factors that drive wheat prices usually affect the overall agricultural commodities market.
There are several factors that may have a significant impact on the value of wheat. These, among others, include geopolitical stability, fluctuations in foreign currency exchange rates, changing trade regulations and restrictions, transportation costs and speculator effect.
However, like with many other commodities, the major wheat price drivers are the laws of supply and demand. Emerging markets with growing populations in the Middle East, Sub-Saharan Africa and South Asia could boost wheat demand, while natural disasters and droughts could wreak havoc on supplies, sending prices higher.
This dynamic interplay of external forces ensures wheat’s high price volatility that offers traders great opportunities to capitalise on.
What are the soft commodities?
The term “soft commodities” generally refers to agricultural goods that are grown rather than extracted or mined. Also known as “softs”, these are some of the oldest assets available to trade today, with their roots in commerce tracing back thousands of years. Some of the examples of soft commodities include wheat, coffee, cocoa, cotton, corn, sugar and orange juice.
Softs trading has been gaining more interest among traders who are looking to diversify their portfolio of stocks and bonds. Owning even the smallest percentage of soft commodities can help to hedge against political and economic turbulence and reduce a portfolio's exposure to both volatility and risk.