7 Things to Know Before you Start Trading Wheat Futures

Author: Joseph Easton, Senior Broker at Cannon Trading

1. The Basics:

There are two types of Wheat most commonly traded…

”Chicago Soft Red Winter (SRW) and KC Hard Red Winter (HRW) are the global industry standards for wheat. Chicago SRW Wheat is the most liquid Wheat futures contract in the world, trading the equivalent of more than 15 million tons each day in 2013–9 ½ times more than the largest European contract. Producers, processors, millers and exporters continue to look to Chicago SRW and KC HRW Wheat for the liquidity that is critical for any risk management solution.

Liquidity means that you can execute positions quickly, effectively and efficiently. Liquidity offers more flexibility in structuring hedging strategies to meet your timing and market needs. And when the world is facing new challenges in Wheat risk management, liquidity provides the security you need in order to respond with confidence” – CME Group

• Types of  Wheat Futures: Chicago SRW Wheat Futures  and KC HRW Wheat Futures
• Contract specifications: One contract (5,000 bushels) of deliverable (~ 136 Metric Tons)
• Common Symbol:  CME Globex: ZW  and CME Globex: KE

2. Market Movements and Trading hours:

Move per tick: 1/4 cent per bushel ($12.50 per contract)

One cent is equal to $50 per contract and $1.00 move is $5000 per contract

Trading hours: Sunday – Friday, 7:00 p.m. – 7:45 a.m. CT and Monday – Friday, 8:30 a.m. – 1:20 p.m. CT

In summary the market is basically open twice a day;  Once at night or GLOBEX and once during the day, also known as the pit session.

Recently the close for the day has been extended from 1:15 p.m. CT to 1:20 CT.

3. Price and Volume:

In my opinion the most important “thing” about any market is the PRICE. Markets are made by buyers (bid) and sellers (ask) and the last price is where those parties agreed most recently.

On this date 4/10/2017

The front month for May ZW closed today at $4.9050 the listed volume was 123,877 contracts.

The front month for May KE closed today at $5.2075 the listed volume was 35,103 contracts.

ZW has a high this year at $5.18 and a year low of $413.25

KE has a high this year at $5.465 and a year low of $420.5

ZW has a high 3 year high at $5.745 and a 3 year low of $3.81

KE has a 3 year high at $5.7725 and a 3 year low of $388.5

4. Margins:

The current initial margin for ZW (Chicago Wheat) is $1100 per contract

The current initial margin for KE (Kansas City Wheat) is $1155 per contract

A Margin Requirement is the percentage of marginable positions/cash that an investor must have as collateral with the exchange through an FCM.

5. Limit Moves:

‘Limit Move‘ The largest amount of change that the price of a commodity futures contract. It is not possible to trade a futures contract at a price either above or below the futures contract price during a limit move until the limit has been extended (by the exchange) or the next trading day.

Currently the daily limit for both ZW and KE is $.30.  This limit can be extended based on the Exchange discretion.  Markets can be locked limit for an indefinite time.  Understanding limits moves is something you should speak to your Broker about more in depth.

6. Report Dates:

The second Tuesday every month is WASDE (World Agriculture Supply and Demand) other reports are scheduled and need to be considered when trading Wheat Futures

https://www.usda.gov/oce/commodity/wasde

https://www.usda.gov/media/agency-reports

7. Small Print:

Contract  Grade and Quality

ZW:

No. 2 at contract price with a maximum of 10 IDK per 100 grams; No. 1 at a 1 1/2-cent premium.

Deliverable grades of HRW shall contain a minimum 11% protein level. However, protein levels of less than 11%, but equal to or greater than 10.5% are deliverable at a ten cent (10¢) discount to contract price. Protein levels of less than 10.5% are not deliverable.

KE:

#2 Soft Red Winter at contract price, #1 Soft Red Winter at a 3 cent premium, other deliverable grades listed in Rule 14104.

Listed Contracts:

Wheat can be traded anytime, but you must trade in the following months March (H), May (K), July (N), September (U) & December (Z)

Resources:

http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/wheat_contract_specifications.html

http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/kc-wheat_contract_specifications.html

DISCLAIMER:

The above information was drawn from sources believed to be reliable. Although it is believed that information provided is accurate, no guarantee is made.

About Cannon Trading Company

Cannon Trading Company (member of the National Futures Association, Commodity Futures Trading Commission, and Better Business Bureau) has been located in the financial district of Beverly Hills, California for over twenty years. We take great pride in the service we provide to our clients and offer a variety of the industry’s top-of-the-line trading platforms, professionally developed automated trading strategies, and some of the most competitive rates in the industry. Every call is answered by a licensed broker, and we do our best to help traders achieve profits, educate themselves about the markets, and create successful trading strategies. Our worldwide client base speaks for itself. We have been mentioned in several leading industry publications, including a feature in Futures Magazine and a recent readers choice award from Technical Analysis of Stocks and Commodities Magazine. To check on our NFA status and record, please visit: http://www.nfa.futures.org/basicnet/Details.aspx?entityid=0216708&rn=Y

IMPORTANT PLEASE NOTE:  TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS.  THE RECOMMENDATIONS CONTAINED IN THIS LETTER ARE OF OPINION AND DO NOT GUARANTEE ANY PROFITS.  THERE IS NOT AN ACTUAL ACCOUNT TRADING THESE RECOMMENDATIONS. THESE ARE RISKY MARKETS AND ONLY RISK CAPITAL SHOULD BE USED.  PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.