January 11, 2017
A Dynamic Commodities Exclusive
Wheat is perhaps the most political commodity in the world. While most people would think that crude oil is more political because of where the majority of oil reserves exist in the Middle East, it is wheat that is the mother of all staples. All people around the world require nutrition on a daily basis and bread is a staple. The main ingredient in bread is wheat and as such wheat has a special role in the world.
Over the course of history, wheat has been at the center of many political changes. The French Revolution began as the result of a wheat shortage. When the citizenry could not get their daily bread they overthrew the monarchy. There are many examples of wheat’s role in political change. The most recent was the Arab Spring that began in Tunisia and spread to Egypt as a result of increasing bread prices and shortages of availability because of a poor global harvest of the grain.
While the United States is the major world producer of corn and soybeans, wheat production occurs all over the world. However, the U.S. is a major producer and at times the world’s leading exporter depending upon the harvest each year.
Wheat grown in different parts of the U.S. has different properties and uses. Three types of wheat trade on futures exchanges in the United States. The Chicago Board of Trade (CBOT) wheat contracts it the most actively traded and represents soft red winter wheat. This wheat grows in central Texas, the northeastern Great Lakes and east to the Atlantic. It is most suitable for cakes, cookies, snack foods, crackers and pastries.
The bulk of the wheat grown in the U.S. trades on the Kansas City Board of Trade (KCBT) and is hard red winter wheat. This wheat grows in Kansas, Nebraska, Oklahoma and the Texas panhandle and is suited for bread production.
The third type of wheat traded on the Minneapolis Grain Exchange (MGE) is spring wheat which grows in northern plains states of Montana, Wyoming, North and South Dakota, and Idaho. Spring wheat is the least actively traded wheat but tends to be the highest-grade with the most protein content suitable for bread production. Durham is another form of wheat that grows in the U.S. that is suitable for pastas and has the highest protein levels.
CBOT, KCBT and MGE wheat all trade in the futures market and the prices of KCBT and MGE wheat tend to trade at a premium to the CBOT wheat. However, whenever you hear about wheat futures, the information tends to refer to the CBOT wheat which is the futures contract that attracts the most trading volume and open interest.
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