Introduction to Wheat Futures

CME Group offers two types of Wheat products:  Chicago Soft Red Winter Wheat futures contract (ZW) and Kansas City Hard Red Winter Wheat (KE).

These domestic winter wheat crops are sowed around early October and are harvested between May and July following a period of winter dormancy.  Around two-thirds of all wheat is used for human consumption, with the remainder designated for livestock feed and industrial use.

The contracts for both ZW and KE represent 5,000 bushels of winter wheat with a minimum price fluctuation of one quarter of one cent per bushel, or $12.50 per contract.

Both contracts trade Sunday-Friday from 7 p.m. to 7:45 a.m. Central Time (CT) and Monday-Friday from 8:30 a.m. to 1:20 p.m. CT.

The USDA and Wheat

Like other crops, the USDA is the main supplier of information regarding wheat.  Monthly supply/demand estimates and crop reports provide critical information on domestic wheat supply for market participants.

Traders also examine the USDA's Wheat Outlook to understand the changes in the domestic and internationsl marketplace and its annual yearbook for statistics and projections about the previous and upcoming years.

Supply and Demand

Weather is the primary determinant for the supply of wheat.  As with other crops, the wheat trade is most volatile and hits its highs during the period between planting and harvest.  If the winter wheat crop emerges from its dormancy in a healthy shape, the ZW and KE commonly decline during harvest.

Wheat often trades in concert with other crops.  As such, wheat speculators and hedgers try to detext inter-market pricing trends and profit from spreads between wheat and other crops.

The demand side of the trade is slightly more predictable as wheat is already embedded in the diet of billions.  However, as the global population continues to grow, wheat demand slopes steadily upward.

This global demand and the U.S. export market make the price of ZW and KE susceptible to international influences, political turmoil in other wheat producing countries and changes in the value of the U.S. dollar dramatically impact demand for U.S. wheat.

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