Commodity Trading Trends: Wheat Futures Soaring

Includes: MON, MOS, POT, WEET
by: Jared Cummans

While most traders have kept their eyes glued to high profile commodities like gold and crude oil, wheat futures have been on an absolute tear. Three different kinds of wheat futures are up more than 10% in the trailing week, with standard wheat futures gaining roughly 18%. The majority of the crop is used in human consumption, ranging from cereal and bread, to pasta and even beer. Unlike corn, wheat is primarily used as food and doesn’t find its way into biofuels or livestock feed nearly as much as its yellow cousin. As a result, wheat is grown primarily to make a high quality flour for baking bread in countries around the world.

The recent rally in this agricultural crop has been largely attributed to a drought mixed with hot weather in major growing regions of the U.S. as well as Russia. With this surge in prices being designated as a weather-driven rally, it is important to note that it can be turned on its head in an instant. Traders looking to make a play on this commodity would do well to watch weather patterns in the Mid-west and other major growing regions, as future forecasts will likely dictate price movements for this crop.

Ways To Play

For investors who have a strong opinion on where wheat is headed, or for traders looking to make a quick return, there are a wealth of options available. Perhaps the most direct option available is the July wheat contract on the CBOT. The July contract is currently the most heavily-traded future and will offer the best liquidity. But not everyone is savvy to futures markets as they can be quite complex and difficult to understand. The Pure Beta Grains ETN (NYSEARCA:WEET), contains a basket of wheat futures offered through an exchange traded structure, making it more accessible to investors. Finally, those who wish to make a more indirect play can choose from a number of stocks, like Potash (NYSE:POT), Monsanto (NYSE:MON), and The Mosaic Company (NYSE:MOS). Investments in these stocks will not mirror movements in wheat prices, but can be an effective way to play strength in this commodity market.

Disclosure: No positions at time of writing.

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