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WHEAT
BACKGROUND INFO
A
rose by any other name may be a rose, however Wheat by any other name is
not Wheat. There are three main types of Wheat with active futures
contracts traded on them: Soft Red Winter Wheat (Chicago Board of Trade),
Hard Red Winter Wheat (Kansas City Board of Trade), and Hard Red Spring
Wheat (Minneapolis Board of Trade). In futures vernacular, each type of
Wheat is typically referred to by the city in which it is traded, such as
Chicago Wheat is used instead of Soft Red Winter Wheat, while Kansas City
and Minneapolis refer to Hard Winter and Spring, respectively.
Though
there are many different varieties of Wheat grown throughout the world,
such as Soft/Hard/White/Red, there are only two main classifications of
Wheat, winter and spring. Winter Wheat is planted in the winter and Spring
Wheat is planted in the spring, hence the names. Each particular type of
Wheat, Hard Red, Soft Red, Durum and White, requires slightly different
climatic conditions for growth and is best suited for each type.
 The
most prevalent class of Wheat grown in the Untied States is Hard Red
Winter or Kansas City Board of Trade Wheat. Hard Red Winter Wheat is grown
predominantly in Kansas, Nebraska, Oklahoma, and the Texas panhandle. The
cold, sub zero winters and the general lack of precipitation make these
regions of the country ideal for Hard Red Winter Wheat production. The
primary use of Hard Red Winter Wheat Flour is for bread making.
Soft
Red Winter Wheat futures - the most actively traded Wheat futures contract
- are traded on the Chicago Board of Trade (CBOT). The first modern
futures contract was for Soft Red Winter Wheat. Soft Red Winter Wheat is
grown in diverse areas of the country, central Texas, towards the
northeastern Great Lakes and east to the Atlantic. Soft Red Wheat is grown
in more humid environments, not suited to hard grain production. The flour
from Soft Red Winter Wheat is used to make cakes, cookies, snack foods,
crackers and pastries.
 Hard
Red Spring Wheat is grown in the Northern Plains states where the winters
are too severe for Winter Wheat production, but the rich black soil and
the dry, hot summers make it ideal for this type of wheat. The major
producing states are Montana, Wyoming, North and South Dakota, as well as
Idaho. This high grade Wheat is suitable for milling and used primarily in
breads. Hard Red Spring Wheat is often referred to as Minneapolis
Wheat, because that is where Spring Wheat futures are traded.
 Wheat
usage is a function of the protein content.
Generally, the higher the protein content, the harder the Wheat.
Durum Wheat has the hardest of all the wheat kernels. It contains the
highest proportion of protein of any of the classes of wheat. Durum is
primarily used in the production of pasta, spaghetti, macaroni and other
various pastas. Due to its high protein content, Durum wheat flour is not
suitable for breads or pastries. Both Winter and Spring Wheat strains are
grown in the United States, primarily in Michigan, New York, Oregon, and
Washington.
White
Wheat accounts for the least amount of acreage grown of any of the Wheat
varieties. White Wheat is often substituted for Soft Red Winter Wheat
since its protein content and texture mill into a flour is suited for
similar purposes (cakes, cookies, snack foods, crackers and pastries).
Each
of the exchanges does specify a specific type and grade of Wheat for
delivery against its contract, and most of the exchanges allow for
substitutions at variable price differentials (premiums or discounts). For
example, most traders and hedgers in the White Wheat market use the CBOT
Wheat contract to hedge, while Durum positions are often hedged against
the Minneapolis Grain Exchange contract, because most of the Durum Wheat
in the United States is grown in the same region - North Dakota.
Wheat
is the most cosmopolitan of all the grain crops, and the only grain which
the United States is not the worlds dominant producer.
Wheat is produced globally, and is truly an international crop.
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Approximate
Crop Production Cycle
for Winter Wheat
Top 5 Producing Nations
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The
top five wheat producing nations in the world in order based on their
2001/02 production levels are China, the European Union (EU-15), Former
Soviet Union (FSU-12), India, and the United States.
The top five wheat consuming nations in order based on their
2001/02 domestic usage are China, The European Union (EU-15), The Former
Soviet Union (FSU-12), India, and Russia. The United States is the 6th
largest consumer of Wheat internationally. However, the United States is
the number 1 exporter of Wheat internationally.
In order based on their exports during the 2001/02 marketing year,
the top 5 world wheat exporting nations are The United States, Canada,
Australia, The Former Soviet Union (FSU-12) and Argentina.
The top five importing nations are North Africa, South East Asia,
The European Union (EU-15), Brazil, and the Former Soviet Union (FSU-12).
Winter
Wheat is planted at a variety of different times around the world.
However, four of the top five producing Wheat nations are in the Northern
hemisphere, and generally follow a similar time table.
Winter
Wheat is usually planted in September or early October when the soil is
sufficiently moist to germinate the seed. In
the colder climates, the seeds are covered with a blanket of snow, which
protects them until the spring, when the crop re-emerges from under a
blanket of snow. Planting is
probably the most critical stage of production for wheat. Late plantings
or disease right after planting can severely affect yields and the
certainty of future production.
After
planting, in the colder climates, wheat goes into dormancy for the winter.
Warm winters, or thawing and re-freezing, can cause the ground to heave,
separating the chaff from the root system and killing a wheat crop.
Thus "winter kill" is a risk as well to the wheat crop.
In
the spring, the wheat crop emerges and then begins to pollinate.
Wheat, being a grass, is much less susceptible to damage than other
grains during pollination or its reproductive stage.
However, a lack of rain fall, extreme heat, or pests can be
problems.
Generally,
6 to 8 weeks after heading, the Wheat crop is ready for harvest.
CBOT Wheat Futures Composite
Seasonal Chart
Chart compliments of www.tntseasonals.com
Past performance is not necessarily indicative of future results.
KCBT Wheat Futures Composite
Seasonal Chart
Chart compliments of www.tntseasonals.com
Past performance is not necessarily indicative of future results.
This
cycle from least certainty of future production - planting and early
emergence - to more certainty is generally reflected in Wheat futures
prices. Typically, CBOT Wheat
prices tend to peak just after planting, rising from harvest lows on the
uncertain outlook for future supply before planting.
After planting, prices tend to break as the most major hurdle
towards future production and supply is achieved.
Prices typically get a spike higher in mid
to late April, on fear of a late frost, or lack of precipitation and heat
going into heading. Then
prices tend to break on harvest pressure.
After harvest, the cycle repeats as the uncertainty regarding
future production is raised again with the coming planting in September
and October.
SEASONAL TENDENCIES ARE
A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS
THAT HAVE OCCURRED IN THE PAST 15 YEARS.
THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR
ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR
DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR.
EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT
IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND
LIQUIDATION MAY IMPACT ON THE RESULTS.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST,
OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS.
NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN
THE FUTURE.
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