How to Invest in Wheat Commodities

The most common type of wheat is called "bread wheat." It is grown on prairies. The Chicago Board of Trade (CBOT) tracks this and other wheat futures prices over an international exchange that brings the buyers and sellers of wheat together. This is also the most direct way to access wheat markets. A wheat "future" is a contract to deliver a certain amount of wheat to a buyer at a certain date in the future and at a certain price. It is a regulated way to invest in wheat as a commodity. The contracts are standardized and require little customization. Each contract specifies which type of wheat future is being delivered and the amount.

Instructions

1. Review the industry. In addition to the United States, wheat is produced in several countries including Argentina, Canada, India, Russia, China and Australia. Weather conditions in these areas drive the commodity's supply, and ultimately help drive profits and the direction of futures contracts.

2. Go to the CBOT Wheat Home Page. Here you will find a list of quotes for different wheat products.

3. Click on "Specifications" to view the specification for each contract. Stated within the specifications are the terms and conditions of the contract. If you are unfamiliar with this document, review it with a financial adviser or contract lawyer before making your first trade. Some things to look for in the specification are contract size (5,000 bushels for wheat), pricing unit (cents per bushel), and tick size or minimum fluctuation (1/4 of one cent per bushel or $12.50 per contract).

4. Review primary specifications. Each contract represents 5,000 bushels (about 136 metric tons) of wheat and is priced in cents per bushel. The last day to trade the contract is on the 15th of each calendar month. Also note the ticker symbol is "ZW" on the CME Globex (CBOT exchange) or simply "W" in other exchanges. You will need the ticker to purchase shares.

5. Track the contract price. Now that you know what to buy you need to determine when to buy. Track the historical price for the past three months to review the trend. If you think the price is going up, submit a purchase order to your broker.

6. Review contract pricing. The specification will tell you the unit of measurement on the contract. In this case there are 5,000 bushels per contract. At about $5 per contract that equates to $25,000. However, you can purchase wheat contracts on margin (which usually means you only have to put down around 10 percent of the full purchase price in order to control the contract) which means you would only have to put down roughly $2,500 in order to purchase the contract.

7. Vet the broker. Both the federal U.S. Commodity Futures Trading Commission, and the self-regulating National Futures Association can help find a reputable broker. Find links in Resources. Request a simulated trading platform to test out trading software and practice trades.

8. For additional questions regarding investing in wheat futures markets contact the CBOT directly by email at:

   [e-mail]
   CME Group/Chicago HQ
   Main Switchboard
   Local: [phone]
   Toll Free: [phone]

Tips & Warnings

• Trading in futures involves substantial risk. Always consult the advice of a trusted adviser before making any transactions.

References

• CBOT: Wheat Contract Specifications

Resources

• CBOT: Wheat Quotes
• National Futures Association
• US Commodity Futures Trading Commission