Talking about futures option trading, there will be plenty of things for us to learn, but we cannot cover all in some limited words. Today, I will narrow the topic about agricultural wheat. We will talk about Wheat Prices.
To start we will have a look at the prices stream as its history. Wheat prices first rose to $1.00/bushel after a rally of over 60% in 1897. Due in part to crop shortages in India and Europe, the surge in wheat prices at the end of the 19th century was one of many milestones in the price wheat has traded at. During World War I, wheat prices ran to $3.25/bushel. Wheat hit $5 for the first time in the early 1970s and eventually surpassed $10 in the first part of 2008. The price wheat was traded at eventually hit an all time high of $13.00/bushel just one month after reaching $10. So, why did it get too high? There were a number of events causing these pricing milestones including wars, global shortages, and monetary price inflation. These occurrences are rare indeed after all; However, as a wheat trader it’s important for him to understand why prices trade where they do.
Among the factors which influence on the price wheat, it is traded at is largely dependent on the global supply and demand fundamentals. In 2008/2009, the world produced 656 million metric tons (MMT) and consumed 643 MMT of wheat. Those figures have each increased by more than 100 MMT in the past 15 years. People all over the world are consuming more wheat directly and indirectly than they ever have. There are many aspects of global markets that contribute to this trend. One of those factors is growth in the indirect consumption.
Indirect consumption consists mainly of the livestock market. The world consumption of meat has nearly quadrupled in the last 40 years, with per capita consumption doubling. According to the analysis, a large part of the growth has come from developing nations whose meat consumption has doubled on a per capita basis since 1980. So, how did this change influence on the wheat prices? You know, wheat and the rest of the grains are input costs in the production of livestock. The more meat the world consumes, the more wheat that is consumed. You see, this is an important trend affecting the global supply and demand of wheat.
Another fundamental we need to mention to when talking about wheat prices is the global supply and demand for wheat. This is an important factor affecting the price wheat is traded at. 120 MMT, or nearly 20%, of the wheat produced in 2008/2009 was traded on the world market before it was consumed. Some of the largest players in the wheat futures market are foreign sellers and buyers. You will have a better chance of being prepared for another potential milestone in the price of wheat., if you pay attention to the factors effecting supply and demand of these regions.
You have just have a short view of the wheat prices history and the fundamentals affecting on the prices. Once you decide to earn from wheat or futures markets, these information will be much valuable to you. However, trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You have to learn much more. Besides the knowledge, don’t let you miss any update information or news in the futures prices since it will guide your trading ways when futures markets are interactive to each other. Keep learning and updating, I hope to see you soon on the top of floor traders.