Wheat Commodity Market

  CME Group Wheat Futures Price

  Zhengzhou Commodity Exchange (CZCE) Hard White Wheat Futures Price

Wheat is a grass and the seed (kernel) is classified as a cereal grain that has been domesticated by man since the development of the Tigris and Euphrates river valley civilization. Wheat is one of the most important cereal grains due to the high level of gluten (a natural protein) found in the seed kernel, which is used in breads and other baked products. The wheat kernel itself consists of an Endosperm, Bran and Germ. The Endosperm is the bulk of the kernel and is utilized as the source of white flour. The Bran (a source of insoluble fiber) is the outer seed cover of the kernel and is used in the production of whole wheat flour. The Wheat Germ is the fatty embryo of the seed and is separated out from flour production.

Wheat can be used as feed for various types of livestock, however once harvested, wheat kernels are primarily milled (ground) to produce wheat flour. In the United States, due to the high quality of seed, fertilizer, pesticides and farming technique, one acre of planted wheat will produce approximately 37 bushels of wheat kernels. One bushel of wheat kernels (approximately 60 pounds) will produce approximately the same amount of whole wheat flour and approximately 40 pounds of white flour. In the process of producung white flour from the endosperm of the kernel, riboflavin, niacin, thiamine and iron (in the form of additives) are also added.

The various portions of the wheat kernel or wheat field stubble are also used in the production of non-food products: compsite building materials, insulation, paper, adhesives, polymers, binding agent, packaging, cosmetics and hair-care products.

The United States raises about one tenth of the world's wheat. The major wheat producing states in the United States are Kansas (accounting for approximately 1/5 of the total wheat grown in the United States), North Dakota, Washington, Montana and Oklahoma. Other major producers include Canada, China, Russia, the European Community, India, Africa, Australia, and Argentina. Approximately 50% of the wheat grown within the United States is used domestically. The major markets for U.S. wheat exports are Japan, Mexico, Nigeria, Philippines. Korea, European Union and Egypt.

The varieties of Wheat are first classified by Planting Season (Spring / Winter) :

Winter Wheat is planted in the fall, goes dormant during the winter, resumes growth in the spring, and is harvested in the summer.

Spring Wheat is planted in the spring and is harvested in the fall.

Wheat is further classified by Hardness, which refers to the hardness of the wheat kernel.

Wheat is further classified by the Color of the wheat kernel.

There are six main classes of wheat grown in the United States. Each class is used to a particular set of growing conditions, is raised in a specific region, and has unique milling and baking properties.

Hard Red Winter (HRW) wheat is grown in the southern and central great plains and is the predominant class of wheat produced in the United States (approximately 40% of the total annual crop). Flour from hard red winter wheat is used primarily in bread. It accounts for about 50 percent of U.S. wheat production and nearly half of total U.S. wheat exports.

 

Soft Red Winter (SRW) wheat is grown in the eastern third of the United States with most production centered around the Great Lakes region. Its flour is well-suited for use in cakes, cookies, crackers, snack foods, flat breads and pastries.

 

Hard Red Spring (HRS) wheat (subclasses include Dark Northern Spring Wheat, Northern Spring Wheat, Red Spring Wheat) is grown in the northern plains of the United States (North Dakota, South Dakota, Motana and Minnesota). Flour from hard red spring wheat is used in bread.

 

Hard White (HW) wheat is grown in Kansas, Montana, Idaho and California in the United States. It is used in yeast breads, hard rolls, tortillas and noodles.

 

Soft White (SW) wheat (subclasses include Soft White Wheat, White Club Wheat, Western White Wheat) is is grown primarily in the Pacific Northwest and is used to produce cake and pastry flour, noodles and to make unbleached flour used in crackers

 

Durum wheat (subclasses include Durum Wheat, Hard Amber Durum Wheat, Amber Durum Wheat), grown in the northern plains of the United States, is the hardest of the wheat kernels and is primarily used in the production of Semolina flour, which is used in pasta products.

The United States Department of Agriculture (USDA) identifies 8 classes of wheat, in addition to the 6 classes listed above there is Unclassed Wheat and Mixed Wheat (less than 90% of one class)

The United States Department of Agriculture (USDA) further grades wheat kernel crops (Grades 1 - 5, with 1 being the best grade) accordingly based on the level of:

Damage: ground-damaged, badly weather-damaged, diseased, frostdamaged, germ-damaged, heat-damaged, insect-bored, mold-damaged, sprout-damaged,

Defect: Damaged kernels, foreign material, and shrunken and broken kernels.

Dockage. All matter other than wheat that can be removed.

Foreign material: All matter other than wheat that remains.

Heat-damaged kernels: Kernels, pieces of wheat kernels, and other grains that are materially discolored and damaged by heat.

Shrunken and broken kernels.

Test weight refers to the amount of wheat required to fill a satandard Winchester bushel (2,150.42 cubic inch) to capacity. The difference in weights for various grades is that weight increases as kernel mositure content decreases.

Prices for wheat are established through the trading of futures contracts on the Chicago Board of Trade (CBOT), Kansas City Board of Trade (KCBOT), the Minneapolis Grain Exchange and Winnipeg Commodity Exchange.

Wheat of lower quality, not suitable for flour milling, is used as livestock feed. Feed wheat competes with corn, oats and barley and prices must be competitive with these alternative feed grains. Domestic prices are also influenced by the anticipated returns from export sales and the availability of delivery quotas, along with prices in the open feed market.

Crop-related Measurement

Convert Bushels / Metric Tons

(Enter numbers without commas)

Wheat cultivation is subject to a number of fungus infections and pest infections. One of the worst fungal infections is Wheat Stem Rust (Puccinia graminis; most recently referred to Ug99 as this strain was first observed in Uganda in 1999). The fungal infection was controlled over the past 50 years through the development of disease-resistant varieties By Norman Borlaug, but in 2010 there were several instances of stem rust. The fungal infection results in the growth of dark orange / yellowish orange pustules on stems of infected plants. The U.S. Department of Agriculture, Agricultural Research Service indicates that "losses are often severe (50 to 70%) over a large area and individual fields can be totally destroyed. Damage is greatest when the disease becomes severe before the grain is completely formed. In areas favorable for disease development, susceptible cultivars cannot be grown." The nation of Syria had an outbreak of yellow stem rust in mid-2010, (it is thought that the spores were spread across the Red Sea by the wind from East Africa to Yemen, and then north to Syria) the USDA indicated that the 2010 / 2011 Syrian wheat production could decline to 3.3 million tons, an 18% decline from the previous year, and a 35% decline from record harvest levels. In June it was identified in South Africa and there is a fear that it will further spread to Pakistan, India and Bangladesh, and then further east. There are some wheat varieties that are resistant to Ug99 but they are not widely grown, and there are now several varities of Ug99 itself.

Wheat Commodity Exchanges

There are 3 North American commodity futures exchanges for Wheat:

Chicago Board of Trade (CBOT)

Kansas City Board of Trade (KCBOT) - Hard Red Winter / HRW

Minneapolis Grain Exchange (MGEX) - Hard Red Spring / HRS

Commodity Credit Corporation (CCC) / Farm Service Agency (FSA)

In the United States, the Commodity Credit Corporation (CCC) provides financing to farmers. U.S. Government payments consist of Direct Payments (DP), countercyclical Payments (CCP) (DP and CCP are payments that are decoupled from current production and are paid on historic base acres and payment yield), Loan Deficiency Payments (LDP), Marketing Loan Gains (MLG). The 2008 Farm Bill generally extends the existing 2002 program.

To receive loans or loan deficiency payments (LDP) for a crop, a producer must execute a note and security agreement or loan deficiency payment application on or before May 31 of the year following the year in which such crop is normally harvested. To receive direct payments, an individual or entity must be a producer on a farm with base acres enrolled in the Direct and Counter-cyclical payment Program (DCP). Producers may elect to receive a 22% advance payment when they enroll in the DCP. Base acres are established on a farm for covered commodities based on historical plantings. For instance, for each covered commodity, the direct payment in 2008 equaled 85% of the farm's base acreage for the crop, times the direct payment yield for that crop, times the direct payment rate for that crop. The 2008 rate for wheat was $0.52 per bushel. The USDA's Farm Service Agency distributes direct payments for the CCC.

For each commodity, the total direct payment for the 2009 crop year for producers on a farm is determined by multiplying 83.3% of the farm's base acreage times the farm's direct payment yield times the direct payment rate. For 2012, the payment percentage changes from 83.3 to 85% of the farm's base acreage.

The following is an example for 2009 wheat:

Base acres planted to wheat:

100 acres x 83.3%

83.3 acres payment acres

x 110 bushels direct payment yield

x $0.52 per bushel direct payment rate

$4,765.00 direct payment

Direct payments are not based on producers' current production choices, but instead are tied to established base acres and yields.

In addition to direct payments, the 2008 Farm Bill authorizes counter-cyclical payments, which provide support counter to the cycle of market prices as part of a "safety net" in the event of low crop prices. Counter-cyclical payments for a commodity are only issued if the effective price for a commodity is below the target price for the commodity. Target prices, as provided by the 2008 Farm Bill, for wheat is $3.92 per bushel.

Marketing assistance loans provide producers interim financing at harvest time to meet cash flow needs without having to sell their commodities when market prices are typically at harvest-time lows. Loans for covered commodities are non-recourse because the commodity is pledged as loan collateral and producers have the option of delivering the pledged collateral to the CCC in satisfaction of the repayment of the outstanding loan at maturity. A settlement value is determined and applied to the outstanding loan principal and interest.

Wheat Commodity & Markets Information Resources

Borlaug Global Rust Initiative (BGRI)   www.globalrust.org/

Food and Agriculture Organization of the United Nations (FAO) - Rust SPORE Global Wheat Rust Monitoring System   www.fao.org/agriculture/crops/rust/stem/en/

International Maize and Wheat Improvement Center (CIMMYT)   www.cimmyt.org/

Peoples Republic of China, State Administration of Grain   www.chinagrain.gov.cn/english/index.html

U.S. Department of Agriculture (USDA), Agricultural Research Service (ARS) - Wheat Rust   www.ars.usda.gov/Main/docs.htm?docid=9910