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Basic Fundamentals


What Market Fundamentals Can Affect The Wheat Futures?

Soft Red Winter Wheat is grown from the Southern Midwest down to Texas. These wheat futures trade at the CBOT. When you are considering a trade in wheat market some of the basic fundamentals that you should consider are:

1. Weather Weather affects yields, and therefore it is a major factor that affects the price of all grains including wheat. During the 2007-2008 growing season weather was especially bad. Dry spring weather, and early wet summers reduced wheat harvests in Canada by 25%, and in Australia by 15%. The wheat harvest in the United States was diminished by an early freeze followed by excessive rain, disease and insect problems. In Europe, too much rain also reduced the quality of a large portion of European wheat rendering it fit for animal feed only. The resulting shortages sent wheat prices to record highs.

2. Exports While world wheat reserves are the lowest in 25 years, demand for wheat remains robust. In 2007 wheat-importing nations including Egypt, Iraq and Iran were importing over a million bushels of U.S. wheat per week. Recently, the strength of the U.S. dollar has been weighing on U.S. exports. Russia has taken advantage of the situation by trying to get a foothold in some of the U.S.’s traditional markets.

3. Wheat Diseases Wheat is subject to more diseases than other grains, and, in some seasons, especially in wet ones, heavier losses are sustained from those diseases than are in other cereal crops. Wheat may suffer from the attack of insects at the root; from blight, which primarily affects the leaf or straw, and ultimately deprives the grain of sufficient nourishment; from mildew on the ear; and from gum of different shades, which lodges on the chaff or cups in which the grain is deposited.

4. USDA Crop Reports The USDA publishes several key crop reports that are helpful in your research and trading of wheat futures and options. The first main report comes out at the beginning of the wheat growing season. It is the USDA Prospective Plantings Report. It is released around the end of March. It summarizes how much and which crops the farmers expect to plant for the upcoming season. The USDA Monthly Crop Production Report is released around the 10th of each month. The report gives an updated estimate of supply and demand for wheat. The USDA Grain Stocks Report provides information on the current supply of wheat and other grains in the U.S. and the world.

These are just some of the basic fundamentals to keep in mind when you are considering a trade in the wheat market. Before opening up a commodity account to trade wheat you should consult with a licensed commodity broker that follows the wheat market to discuss investment strategies.

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Commodity trading is not suitable for everyone. The risk of loss in trading can be substantial. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Carefully consider the inherent risks of such an investment in light of your financial condition. Past results are not necessarily indicative of future results. Please do your own research before investing in the futures market. This site contains no investment recommendations. The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness.