Wheat: The Second Most Political Commodity In The World

Apr. 21, 2015 6:39 AM ETDBA, CORN, JJGTF, WEAT, GRU5 Comments

Summary

  • Wheat prices have moved lower.
  • Wheat production is global.
  • Consumers only hedge on rallies.
  • One technical factor could be setting wheat up for an interesting year.

Some commodities or raw materials are different from others. They have special, unique characteristics or utilities that separate them from others. There are two staples that are truly political in every way - crude oil and wheat.

Oil, a liquid form of energy that powers technology since the industrial revolution, is political by virtue of a number of important reasons. Its consumption is ubiquitous - all over the world, oil has powered innovation. The availability and price of oil affects most inhabitants of the planet. Individuals require its refined products, and governments wish to protect or control supplies. Few other commodities garner such attention and have such a far-reaching impact on the current human condition. Given the long history of man, the political significance of oil is relatively new. One of the factors that make oil so political is the location of vast reserves in some of the most difficult regions on earth, namely the Middle East. The other political commodity is wheat, the basic ingredient in bread.

Wheat has a longer political history than oil. Bread is a staple for humankind - people need food to survive. Throughout history, shortages of bread have caused political upheaval. The French revolution started because of a bread shortage and rising prices. Most recently, the Arab Spring, which commenced in 2010, began initially as a bread riot. To maintain power, governments must meet the basic needs of their citizenry that sustains life. There is nothing more basic than the demand for bread. Therefore, bread is not only a staple, it is a political requirement. Governments must make sure that they have ample crops or imports to satisfy the needs of their people. While oil may be the most political commodity in the world today, wheat is a close second, and price shocks can quickly assert the political nature of the grain.

This article was written by

Andrew Hecht profile picture
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Weekly commodities commentary and calls, from a Wall Street veteran
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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