What is wheat exactly?
Wheat is a type of grain. Flower, for example, is a product made of wheat. It is used in a lot of different type of products like bread, pancakes, pasta and couscous. But there are different types of wheat like hard red spring wheat, winter wheat, soft red spring wheat and durum. An important source of fiber, vitamins and minerals are the whole grain wheats. People with coeliakia can’t eat any wheat, because it contains gluten.
What advantages does wheat offer?
Spring wheat has a couple important advantages, which make this wheat the second largest player in the world. It contains the capacity to grow very fast in a wide spectrum of diverse environments. Not only that, the fact it does not spoil fast but lasts long is an advantage. Last but not least, the nutritional value and the amount of egg white are very high, which is good.
Wheat in comparison to other grain species
Wheat, just like corn, is not only used in our food chain, but also as bio fuel. In food, you can find wheat in pizzas, pastas, bread and more. The amount of wheat produced that gets used by the food industry is about 58% of the total production. A large portion of the produced wheat is used for making bio fuels or other derivatives that are meant for industry purposes.
If we compare wheat to rice, for example, it requires a lot less labor and wator to grow. Countries that are looking for a low maintenance solution to provide their people with food therefore like to choose spring wheat.
But there is something interesting going on with wheat. There is a current trend that shifts to using less wheat. Because of the rise of ethanol, a lot of farmers prefer to grow corn instead of wheat. The price of wheat in the future might not grow as fast as corn, is what the farmers are thinking. As a result of this, it also means that in the upcoming years we might get wheat shortages, which actually mean higher prices.
Investing in wheat
From the investment perspective and wheat, there is a very important property to this food. Because it is capable of feeding a population for the long term. This, like other raw materials, makes wheat products interesting for investors, to diversify their portfolio. When the inflation rises, the prices of raw materials like spring wheat will rise as well.
The conclusion is that when inflation does make other investments shrink, it also helps raw materials rise in value. Because of the worldwide use of wheat, it is a very attractive inflation hedge.*
*Inflation hedge is an investment of activa that are not sensitive to or maintain their value in times of inflation. Think of natural resources, certain raw materials and minerals.
How do I invest in wheat raw materials?
|Wheat production (millions of tons)
In comparison to many other raw materials that are dominated by only a few countries, you can find producers of wheat all over the world. The largest players being China and India, but also countries like Canada and Germany have a huge capacity to produce spring wheat.
Important to know; how does wheat get measured?
Are you investing in wheat? Then it is good to know how this product is measured, before you get taught a lesson like these people. For investment and bookkeeping they measure in bushels. A bushel contains about 60 lbs of wheat. It isn’t about the grams, or kilos, but about bushels. This measurement has been specifically created for the wheat market. It represents about 27.21 kilo of wheat.
Another important cue in trading wheat is that the note is not in American dollars, but in American cents. So pay good attention to the wheat price.
What is the advantages of trading wheat?
The reason so many traders are using the wheat market, is the rising line that we see when it comes to the price of the raw material. When we look at the historical values of the wheat prices, we see a general trend in the long term going up, but the market has had a couple very interesting phases.
From 1999 to 2005 the price of spring wheat stayed stable around 300 cents per bushel. Suddenly a growth in the market appeared and wheat reached the unknown price bump in 2008 to 1334 cents per bushel.
The period we mentioned was immediately corrected by a drop which stopped at 500 cents per bushel. The reason why the height of the price of wheat happened here is named as the sudden industrial interest in this natural raw material. Bio-ethanol then rose to fame.
Indicators that impact the price of wheat
There are a couple of indicators that help you indicate what the upcoming prices of wheat are going to be. This data helps traders of wheat to guess the trend and development of the market for the mid- and longer term vision. The points that determine the price of wheat the most are:
- Climate factors
- Demand and supply (like all raw materials)
- Commercial policies of production and buying of countries (import, export, taxes etc.)
- Supply levels (comparable to supply and production figure)
- Development of world population
The volatile market of spring wheat
The most active month of delivery of wheat are around march, may, july, september and december. Besides soy beans, wheat is also a pretty volatile market with a large daily offer. Because it is used so much – worldwide – a lot of swings can be seen every day.
Wheat remains a product of nature. And while the trade in wheat seems to be a volatile market, the product is also dependent on the influences of the weather. This is why draughts and natural disasters can do a lot of damage to land and supply and the prices can rise because of it.
Features when you are trading or investing in wheat
Wheat is an investment that requires a lot of input. Especially when you are going for short-term investments. It an investment that you have to keep your eye on. When you do not want to keep your eyes on the market all the time, wheat might not be a great option for you.
This is what 2021 looked like
In 2021 we saw the price of wheat rise partially to a new record of €300,- per tonne. If we look at the data of January 2021, that is a huge difference. Then the price was €175,- per tonne and we can almost say the price as doubled since then. In the past year, the climate has changed a lot and the farmers that produce this product are very aware of this. It not only took them longer to harvest the product, they also had smaller yields. Especially in Western Europe and the United States these numbers were pretty bad. There was hope that this would be a lot better in 2022.
The development of the wheat price in 2022
Last year we saw record prices for spring wheat appear, but this year was the absolute shocker. Many species of wheat are made ni Ukraine, where the war is going on. This causes a lot of supply to be lost. A lot of people also had to flee the country, which means that the fields could not be sewn and there was less yield this year. Right now we are over the price of €410,- per tonne. This used to be under €350,-, which was also already high. Luckily we are seeing that the supply contracts that companies are willing to sign until 2023 are a lot cheaper. The average prices of these are around €310,-. The war is not over yet, so this might also just swing the other way. But for now this is the most recent data.