Whether it's soft red winter, hard red spring, white or durum, wheat has universal appeal as a food product -- and as an investment, it gets plenty of action due to global upheavals. You can get on board with wheat commodities a number of ways: as exchange-traded funds, agribusiness-linked stocks and futures. Wheat futures in the United States are traded on the Kansas City Board of Trade and the Chicago Board of Trade. CBOT wheat futures contracts give you control over 5,000 bushels of soft red winter wheat, which are physically delivered at expiration unless you offset your position.
An ancient grain with an historical legacy, wheat is second only to rice among the world's staple grains. Among its virtues include its ability to grow quickly and thrive in a wide range of environments, long shelf life, nutritional value and high protein content. From an investment standpoint, wheat has the traits needed to feed populations over the long haul, as other grains get funneled away for other industrial uses. Commodity educational site Commodity HQ states that the CBOT wheat futures market is very active, and in July 2013, the volume of wheat contracts reached almost 2 million.
Comparison to Other Grains
Compared to other grains, wheat is notable as a "human food." Unlike corn, which may be used as feedstock for biofuel production or as feed for livestock, wheat generally ends up in pizzas and pastas rather than as fodder or fuel. Distinct from rice, it does not require as much water or labor to grow and could become the grain of choice of countries that want a lower-maintenance solution to feeding their populations. Wheat is sensitive to activity in other grain markets. The rise of ethanol has made farmers favor corn over other grains, to the detriment of wheat, which could lead to shortfalls in coming years and higher prices.
As with other commodities, wheat commodities are attractive to investors in that they act as an inflationary hedge. When inflation occurs, the prices of raw material inputs such as wheat also rise. So while inflation may eat away at other investments, the increased value in the commodity sector helps to take the edge off of losses experienced elsewhere in other investments. Wheat's widespread use in food production makes it a compelling inflation hedge.
When trading wheat commodities, a dynamic interplay of external forces acts on the market to ensure that there is plenty of price volatility to capitalize on. Remember that with commodities, you can go either short or long, meaning you can take advantage of whichever direction the market is going in, whether bullish or bearish. Emerging markets with growing populations in South Asia, Sub-Saharan Africa and the Middle East could drive wheat demand higher, while droughts and natural disasters could wreak havoc on supplies and send prices soaring.
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