Spotlight: Kansas City Hard Red Winter Wheat Futures

Wheat traders have used the Chicago Soft Red Winter Wheat futures contract to source liquidity for 140 years. What many are beginning to notice is that there is another, deeply liquid wheat contract, KC Hard Red Winter Wheat, that is growing at a faster rate than any CME Group grain and oilseed benchmark product.

Just prior to harvest in 2016, Open Interest was 64% higher than it was just two years prior in 2014.

The once static KC-Chicago Wheat spread has reached historical extremes as of late.

Understanding the Spread

  • Hard Red Winter Wheat (HRW) is represented by KC Wheat Futures (KE) while Soft Red Winter Wheat (SRW) is represented by Chicago Wheat Futures (KW)
  • HRW has a higher protein content than SRW, and is typically higher priced than SRW
  • The US HRW Wheat crop is typically twice the size of the US SRW Wheat crop
  • The KC HRW-Chicago SRW spread inverted multiple times in near history – every time quickly followed by a recovery
  • The price relationship between the two wheat contracts is a favorite of spread traders – and thus the KC-Chicago Inter-Commodity Spread (KE-ZW) is heavily traded.
  • Implied Spread Functionality is enabled
  • Margin Offsets available ~60% 

Volatility Tends to Prevail During the Second Quarter of the Year

Among major grain and oilseed crops, wheat is the most vulnerable to adverse weather, due to the differing geographical area in which it is grown and its adaptation as a winter crop. During the fall when the plant is young, wheat goes through a process called "cold hardening" to fend off injury during the cold winter temperatures. Once it comes out of dormancy and begins growing in the Spring, wheat has little resistance to low temperatures which tends to cause volatile price movements.

View the contract specs

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