Wheat

Wheat is one of the most widely produced cereal grains in the world and a popular soft commodity in trading, with relatively high volatility. This guide to wheat trading online unpacks the factors influencing live prices, investing strategies, and opening hours. Our team have also ranked the best wheat brokers:

How To Trade Wheat

Wheat trading is the act of speculating on current and future wheat prices.

Wheat is one of the most popular soft commodities, with its worldwide abundance and impact on daily life. With 761 million tonnes produced in 2020, it is the second most-cultivated cereal grain by volume after corn and the key ingredient of staple foods across the planet. It is also used to make soaps, lipstick, lotion, paper, chewing gum and many other products.

Because of the huge amount of wheat that is produced and consumed, prices can be volatile, with supply-side factors having huge effects. This creates profit opportunities for keen traders.

Investors can trade wheat through several vehicles, including futures, options, and CFDs. Importantly, wheat presents opportunities because of its inherent volatility. Arbitrage opportunities are also present because of the relationship between the cash wheat grain and the futures market.

Investors can also trade UK-produced wheat on the ICE directly in GBP, taking away foreign exchange fees.

History

Wheat trading has been around for millennia, stretching as far back as human civilisation. However, the wheat trade as we know it today can be traced back to the 19th century and the Chicago Board of Trade (CBOT)’s opening in 1848 as a cash market for grain. Forward contracts began trading almost instantly. The beginning of wheat futures trading on the CBOT was in 1859.

Nowadays, wheat trading occurs all over the world on many centralised exchanges and in many guises – for example, UK Feed Wheat Futures are traded on the Intercontinental Exchange (ICE).

Trading wheat contracts for physical delivery is not the only way to speculate on prices. Other instruments like CFDs and ETFs can also be used to speculate the price of wheat, with many derivatives available that do not require physical delivery.

What Is Wheat Trading At Today?

What Influences The Price Of Wheat?

Geopolitical Events

Geopolitical events can cause supply chain or production shocks that have a large knock-on effect on wheat prices, particularly if they affect a major wheat-producing country.

For example, the Russian invasion of Ukraine led to a significant rise in grain prices in February/March 2022. In August 2022, UK Flour Millers saw a 60% rise in wheat prices between July 2021 and July 2022, climbing from £206.00 to £328.50. This was caused in part by disruption to exports leaving Ukraine, as well as increased gas and fertiliser costs, among other factors.

Weather

As with all crops, the weather can have a huge effect on wheat yields. One year of bad farming weather can lead to a major fall in wheat supplies and cause prices to spike. The top wheat producing countries include the US, China, India, Russia, Ukraine and France.

The unpredictable nature of the weather is something that farmers struggle with and is one reason that wheat derivatives are so popular – these contracts can protect buyers and sellers from unforeseen price shocks.

Note that price determinants like weather can be difficult to predict, heightening risk for retail traders.

Growing Demand

Recent decades have seen a marked increase in demand for wheat in developing countries such as China that do not traditionally use the crop widely in their staple foods. This can be caused by increased demand for meat and animal feeds that contain wheat, or by other factors such as changing dietary trends.

Growing demand will push wheat prices up, but if the trend reverses you can expect cheaper wheat.

Technological Advancements

The introduction of new technology can have a great effect on wheat prices. New, more efficient farming methods or better storage facilities can increase the supply of wheat, allowing for a fall in price.

The same is true for competing grains, such as barley, corn and oats.

Government Intervention

Governments can also have an impact on wheat prices. Placing price or export limits can vary the supply available, causing price changes. Other factors such as agricultural subsidies can also increase the overall supply, usually lowering prices.

How To Trade Wheat

Wheat trading is available in many forms. UK traders can choose to trade contracts with physical delivery directly on exchanges like the ICE.

Alternatively, they can look for cash-settled futures and options (put and call) or trade popular derivatives such as CFDs where you don’t need to actually purchase bushels of the soft commodity.

Another option is investing in companies involved in the production, distribution and sale of wheat and wheat-related products, such as flour and lipstick.

Stocks

Traders can choose to invest in stocks of companies that have direct involvement in growing or trading wheat. This could include wheat producers, like publicly traded farms, or companies that process wheat for other purposes. These companies’ share prices will often, but not always, move in line with the price of wheat as a commodity.

Popular wheat stocks include Bunge (BG), Deere & Company (DE), and Adecoagro (AGRO).

ETFs

ETFs with wheat usually also contain other agricultural commodities, making them less volatile than trading wheat alone.

ETFs can be bought and sold in a similar way to trading shares in a company; they can also be used as the underlying asset in derivatives contracts such as CFDs.

Popular wheat ETFs include Invesco DB Agriculture Fund and iPath Bloomberg Agriculture Subindex Total Return ETN.

CFDs

CFDs, or contracts for difference, allow traders to speculate on the price of wheat without buying or selling the underlying commodity. This is a popular form of online trading and is widely available through wheat brokers in the UK.

Traders can speculate on rising or falling wheat prices with CFDs. Additionally, margin trading is available with leverage of up to 1:10 typically offered to the UK retail market. This means traders can magnify potential returns (and losses).

Futures

Futures contracts are an agreement between buyers and sellers to buy/sell wheat at a predetermined price at a set future date.

In a classic futures contract, delivery of wheat will take place when the contract expires, but cash-settled futures that require no physical delivery are also available.

Options

Options contracts are similar to futures with the key difference that the contract buyer has the right but not the obligation to settle the contract.

This means that when the expiration date comes, they can choose not to buy or sell the wheat if this would result in a monetary loss, for example. In this case, the trader’s losses would be limited to the premium paid for the contract.

Strategies

Various wheat trading strategies are available to retail investors. Popular systems include:

Spread Trading/Arbitrage

Spread trading, a form of arbitrage, involves opening opposing positions on wheat by buying and selling at the same time and taking advantage of the price discrepancy between different contracts, markets or trading vehicles.

For example, if the spot price of wheat is below the futures price, traders can both buy wheat in the spot market and sell in the futures market to make the difference in profits.

Trend Trading

Trend trading involves finding a pattern, or trend, in the price movement of wheat. When you are confident that you have identified a trend and that it is set to continue, you can profit by placing a trade to follow it.

Traders usually rely heavily on technical analysis for trend trading, though fundamentals could help to build a stronger picture in longer-term trades.

Range Trading

Range trading involves finding the lower and upper limits in the wheat’s price during your chosen timeframe; these are known respectively as support and resistance levels.

Prices tend to bounce between the support and resistance lines, allowing you to buy at the support and sell at resistance for profit.

Comparing Wheat Brokers

The broker you choose to trade wheat with will heavily impact your investing experience. Key comparison factors include:

Fees

Top-rated wheat trading brokers offer tight spreads and competitive commissions. Pepperstone, for example, offers wheat CFDs with an average spread of 0.8 pips and a minimum contract size of 1 bushel.

Other fees to consider include overnight fees for derivatives, deposit or withdrawal charges, plus inactivity penalties.

Leading wheat brokers publish a fee schedule on their websites.

Trading Platform

The platform is where you will place wheat buy and sell orders, and conduct any analysis.

The best wheat trading brokers in the UK offer a bespoke platform and/or a user-friendly terminal like MetaTrader 4 (MT4). MT4 is home to dozens of indicators and drawing tools, multiple order types, automated trading capabilities, and a variety of charts and graphs.

Extra Features

Some wheat trading brokers offer additional features that can make a difference to your investing experience. These range from educational resources on soft commodities to advanced market data or copy trading.

eToro, for example, offers automated copy trading where you can leverage the expertise of experienced investors. There are also no additional fees to use the copy trading tool.

Regulation

Wheat trading brokers regulated by the Financial Conduct Authority (FCA) are the best pick for UK traders. FCA-registered brokerages offer a more secure investing experience than their unregulated counterparts.

UK-licensed brokers must provide negative balance protection so that client accounts cannot go into negative equity. They also have to cap retail trading leverage to limit risk exposure, typically 1:10 on wheat derivatives.

Demo Accounts

Top wheat brokers provide demo accounts so users can practice soft commodity strategies with virtual money. This is also a good opportunity to get familiar with a firm’s platforms, apps and futures trading tools.

Wheat trading broker, AvaTrade for instance, offers demo accounts.

Wheat Trading Hours

Wheat trading times vary by exchange. However, on the ICE, UK Feed Wheat Futures and Options trade between 09:25 and 17:28 for a total trading period of 8 hours and 3 minutes. The pre-open period starts at 06:03.

Trading hours may also vary between online brokers. CMC Markets, for example, offers wheat trading Monday to Friday between 01:00 – 13:45 and 14:30 – 19:20. Weekend trading is not available.

Bottom Line On Trading Wheat

Wheat is a key commodity across the globe that offers high volatility and liquidity. UK traders can speculate on wheat prices through various vehicles, including CFDs and futures. The top wheat trading brokers offer low spreads, stable trading platforms, and hold a license with the FCA.

See our ranking of the best wheat brokers to start trading online.

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