Wheat trading: how can you invest in wheat?
In this article you can read everything about investing in wheat. We discuss whether it is wise to start trading in wheat today. After reading this article, you can decide whether it is smart to invest in wheat through the internet.
How can you invest in wheat?
There are several ways you can invest in Wheat. You can trade directly in the price of the commodity. It is also possible to invest in a fund that follows the price of wheat. In this article you can read exactly how this works.
Trade actively in the price of wheat
When we talk about direct trading in wheat, we are not talking about the physical purchase of large quantities of wheat. No, we are talking about direct CFD trading on the commodity wheat. In that case, there is no need to store wheat.
You don’t actually invest in the wheat itself, but rather in the price of wheat. No one can then oblige you to supply the raw material, so you do not buy wheat, but contracts on wheat itself.
By taking good account of the underlying factors, you can make money with trades in wheat. It is therefore particularly important to keep an eye on the supply side of the market. In the event of bad news around the wheat harvest, it is wise to buy up wheat, as this is likely to push up the price.
When the harvest is better than expected, you can consider a short position. With a short position, you can make money on a falling wheat price. You can easily invest money in wheat through an online broker. A strong broker where you can trade in wheat CFD’s is Plus500. With Plus500 you can try out the possibilities completely free of charge with a demo account. Use the button below to directly open an account:
Indirect investment in wheat with a fund
It is also possible to invest indirectly in wheat. Here, too, we are not talking about a physical purchase of, for example, a loaf of bread that happens to contain wheat.
You could, for example, think of an investment in an index fund that closely follows the price of wheat. You can also buy wheat shares in a company that is often involved in processing wheat into products. Please note that in the latter case, the characteristics of the company also play a role.
Most people will know that wheat is a cereal; in fact, it is one of the most cultivated cereals in the world. This of course results in a lot of supply, which can also be seen in the consumption. Wheat, together with corn, is one of the most eaten grains in the world. Nevertheless, there is a lot of variation possibles within wheat.
Wheat can be divided into different varieties; there is winter wheat, summer wheat and transitional wheat. This name refers to the moment of sowing. Most of the wheat originates from China, the US and Russia.
How does the price of wheat come about?
Wheat is a raw material that is almost always in demand. This is because we use wheat for many products and people will always be hungry. The chance that the demand for wheat will suddenly drop is therefore rather small.
The price of wheat is therefore mainly determined on the supply side. A failed harvest, for example, can lead to sharply rising wheat prices. It may therefore be wise to study how the harvest proceeds in the countries where wheat is mainly grown.
The resource without a dominant player
Wheat can be grown almost anywhere. Because of this, there is no dominant player who can exert a lot of influence on the market. The largest producer of wheat is China, but countries such as India, Russia, America and France also produce large quantities of wheat.
Because there is not a single player controlling most of the market, countries cannot play political games with the resource. This obviously benefits the stability of the resource.
The development of wheat prices in England
Application of wheat
Wheat is, of course, used as food. However, human consumption is not the main destination for wheat. Wheat, for example, is used to produce biofuels.
Raw materials are often traded on a specific stock exchange. Wheat is traded on the CBOT or Chicago Board of Trade. One unit of wheat is 27.21 kilograms. We also call this a bushel. The value of this quantity is given in cents. When a bushel is worth 500, this means that you pay 5 dollars per 27.21 kilos of wheat.
On this exchange, contracts of 5,000 bushels are traded, which means almost 30,000 kilos of wheat. Fortunately, you can also invest in smaller quantities of wheat at modern brokers.
What should you pay attention to when investing in wheat?
The price of wheat is highly subject to climate developments. When the weather is bad and there are many crop failures, the price of wheat can increase significantly. Industrial demand can also influence the price of wheat. This was seen after 2005, for example, when wheat was increasingly used to create ethanol, a biofuel.
Of course, the growing world population also has a positive impact on the price development of wheat. As the number of people grows, so does the number of eaters.
Performance in relation to other cereals
In practice, maize is more often used to create ethanol (a biofuel). This is lucrative, and you can see that more and more farmers have switched from wheat to maize. This may lead to scarcity of wheat in the future, which could further increase the price. Wheat, for example, is used a lot for pastas and pizzas and I can never get enough of that.
There isn’t really a single company that relies entirely on wheat production. You can therefore only freely invest indirectly in wheat companies by investing in a company that is engaged in agriculture. Let’s discuss some shares that are active in this sector.
Mosaic Company did not exist for long, but is now the market leader in America in the field of potato fertilizer. The demand for artificial fertilizer is growing worldwide and Mosaic Company knows how to respond to this. They are active in more than 50 countries. Buying Mosaic Company shares can therefore be attractive.
Bubge Limited is a company that carries out many agricultural activities. Wheat also plays a role within the business model of Bunge Limited. The company processes and transports wheat on a regular basis. It goes without saying that with Bunge Limited you are certainly not investing in the price of wheat, but rather in a large agricultural company. Therefore, first examine how the company is doing.
Arch Daniels Midland Company
Another large company active in agriculture is Arch Daniels Midland Company. This company owns more than 600 facilities where crops are processed and shipped all over the world. Here, too, you do not trade directly in wheat, but more in the agricultural industry as a whole.
What is the current price of wheat?
Below you can see the current CFD price of wheat:
Some tips for trading in wheat
It is now clear that the price of wheat is mainly determined from the supply side of the market. It is therefore wise to make a good analysis of the supply side of the market and to make a move only when there is an indication that the harvest is going exceptionally badly or well.
In the long term, the demand for wheat is likely to continue to grow. After all, the world’s population is still growing and as a result there are more and more hungry people who need to be fed. Nevertheless, developments in the agricultural market may make it easier to grow wheat, so that a higher supply can be achieved with fewer resources.