The Learn About Futures Insider for October 20, 2011: Wheat

Wheat has taken a long journey from its origins in the Fertile Crescent to its current status as one of the world’s primary sources of dietary protein. From breakfast cereal to livestock forage, wheat is an important crop across the globe and wheat futures contracts have evolved as a means for price discovery as well as a likely tool for producers, food processors, importers, and more. In North America, wheat futures contracts trade on more than one exchange, but the contract specifications below will refer to the Chicago futures market.

Contract Size: 5,000 Bushels

Price Quote & Tick Size: Cents per bushel; minimum fluctuation is 1/4 cent per bushel ($12.50 per contract)

Contract Months: March, May, July, September, December

Trading Specs: Trades open outcry and Globex (electronic) per the following schedule:
Electronic: 6:00 pm - 7:15 am and 9:30 am - 1:15 pm Central Time, Sunday – Friday
Open Auction: 9:30 a.m. - 1:15 p.m. Central Time, Mon-Fri.

Daily Price Limit: $0.60 per bushel expandable to $0.90 and then to $1.35 when the market closes at limit bid or limit offer. There shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

Trading Symbols: Open Outcry - W; Electronic - ZW
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Past performance is not indicative of future results.
***chart courtesy of Gecko Software


This domesticated grass crop likely originated near modern-day Turkey and probably reached the shores of North America through Spanish missions to the New World. Today, the United States is among the top centers of wheat production and leads in wheat exports.

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There are dozens of species of domestic wheat - some with names you may recognize such as einkorn, spelt, or durum - and wheat genetics are actually quite complicated, involving different numbers of chromosome sets. Wheat can often be classified further within each species according to its growing season or gluten content resulting in terms like winter wheat, spring wheat, hard wheat, and soft wheat.

Most wheat classes are grown in specific regions:

Hard Red Winter Wheat – approximately 40% of overall production; grown in the Great Plains

Hard Red Spring Wheat – approximately 25% of production; grown in the Northern Plains

Soft Red Winter Wheat – from 15-20% of production; grown along the Mississippi and in Eastern States

White Wheat – around 10-15% of production; grown in Washington, Idaho, Michigan, Oregon, and New York

Durum Wheat – approximately 3-5% of overall production; grown in North Dakota and Montana

North Dakota, Kansas, Montana, and South Dakota normally dominate the overall planted and harvested acreage numbers in wheat.

Overall, the table below shows harvested wheat area in the United States for available years:
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***data courtesy USDA/NASS

The usual planting dates for spring wheat in the United States can be any time through the months of March to May - depending on weather and the State in question - and harvest can occur from August through September.

For winter wheat, usual planting can begin in August in some states and run through February in warmer states like California. Harvest can be likewise spread through many months from May through September. This can be attributed to the period of dormancy for winter wheat during a freeze and a development timeframe which may run from 110 to 130 days from planting to harvest.

No matter where it is grown, farmers usually rely on a scale to determine growth states from tillering to stem extension, heading, flowering, and ripening. These scales can help a farmer identify key stages at which to apply fertilizer or pesticide.

Some of the top producers, importers, and exporters are illustrated in the charts below:

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***data courtesy USDA/NASS

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***data courtesy USDA/NASS
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***data courtesy USDA/NASS

Price highlights for this market include:

* Wheat prices fluctuated in early US, and farmers sometimes had to request government help to try to control or stabilize the values of the cereal crop. Downward pressure was seen on prices in the late 19th century due to the advent of more advanced mechanical planting, harvesting, and threshing machines. Gas powered machines helped lead to record 1.0 billion bushels of production in 1915.
* In the later part of the 19th century, shortages in Europe and India had helped bring prices up over $1 per bushel. World War I led to price movements above $3 a bushel. Strong global demand for American wheat exports coupled with high prices in the early 20th century, prompting farmers to increase production area. This led to a large surplus, and many farmers again seeking government help in supporting prices.
* Wheat prices were below $2 per bushel in the early 1970s. Late in 1972, news of a 400 million bushel deal with Russia caused prices to rally. Prices continued to jump as strong international demand and low crop expectations helped spur buying. By the middle of 1973, prices had soared to levels not seen in 150 years, up over $4 per bushel.
* Depleted wheat stocks led to talk of lifting import tariffs in 1974, bringing some price pressures, but the value per bushel did not revisit the $3 level for an extended period until late 1976. By 1977, prices were just above $2 a bushel as the USDA estimated a large wheat crop for the second year in a row and the largest wheat surplus in 14 years.
* Grain support prices help lift the per bushel values of wheat through the early 1980s. Prices would eventually peak above $5 per bushel.
* In 1996, wheat broke above the record 1974 price of $6+ per bushel on a combination of poor winter wheat growing conditions, low stocks, and a controversial spike in prices from one trading session. Prices were up above $7 per bushel that year but would revisit prices below $3 before the end of the decade.
* In 2007-2008 global wheat prices soared as the essentials cereal crop saw acreage shifted in favor of corn and soybeans, leading to lower production and supplies. Prices would eventually top out at $13.34 per bushel before coming back down on forecasts for increased production.
* In 2010, excessive drought in key growing areas and fires in Russia cut into global wheat production forecasts, leading to suspension of exports from the Black Sea area. Drought in US and European growing areas during the winter wheat season further charged prices, leading them back over $8 per bushel.

Key terms for the wheat market include:

Gluten - a protein found in wheat (and barley and rye) that makes dough elastic and chewy.
Protein content - soft wheats have around 10% protein content and higher starch levels. Hard wheats have around 15% protein. These levels are relevant to help determine whether or not the wheat would be suitable for bread or pasta.
Yield per acre - describes how many bushels are produced per acre. This can vary based on irrigation, weather, moisture, and kind of wheat.

Wheat can be processed into many consumer goods for consumption, from flour and pasta to malt. Each species of wheat may have particular protein, carbohydrate, and fiber levels; among the classifications used in the United States, uses may include the following:

Hard Red Winter Wheat – bread flour

Hard Red Spring Wheat – (high protein levels) bread flour and blending with lower protein wheat

Soft Red Winter Wheat – flour for baked goods such as cakes and cookies

White Wheat – flour for noodles, cereals, crackers, and white breads

Durum Wheat – pasta flour

Milled wheat byproducts like seed coats are used in the production of animal feed.

Key Concerns

Exports - Close to half of the total wheat crop in the United States is exported, making sales and marketing an important part of the wheat industry.

Weather – Like any other agricultural commodity, weather can have an enormous impact on the growth and yield of wheat acres. Freezes, flooding and drought can devastate crops. Australian wheat production suffered significant setbacks during their well-known period of drought in 2007. Then flooding in 2010 pared back crop quality in the island nation. Russia's drought in 2010 deeply affected their production.

Planted Area – Wheat is among the crops that headline the USDA’s annual Prospective Plantings report; and as the use of bio-fuels and changing division of arable lands continues, this report will be worth watching for.

Disease & Insects – Bacterial, viral, and fungal diseases plague all kinds of crops, but wheat may be subject to more diseases than other grains - and concerns can be especially prominent in wet seasons. Different forms of blight can rob the grain of nutrients while mildew and smut can lodge themselves on the chaff. Insects and parasites can present as much of a danger by attacking roots. These risks may be managed with crop rotation, diversification, fungicides, and pesticides.

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