If it had not been for Wheat, human beings may never have socially and culturally developed as cosmopolitan as we have. Wheat was the first crop to be cultivated on a grand scale and stored long-term, enabling the start of city-based societies and the dawning of civilization.
Wheat is a cereal grass, but before cultivation it was a wild grass. Wheat is believed to have originated in southwestern Asia. Archeological research indicates that Wheat was grown as a crop in the Nile Valley about 5,000 BC. Wheat is not native to the U.S. and was first grown here in 1602 near the Massachusetts coast.
When Wheat is traded at the commodity exchanges it must be classified into very specific classes according to grain properties. The Kansas City Wheat contract, also known as Hard Red Winter Wheat, grows during the US winter months. Hard Red Winter Wheat is the most abundant crop in the US, growing in Nebraska, Kansas, Oklahoma and the Texas panhandle. These regions are ideal for planting due to the cold, subzero winters and general lack of precipitation. The planting season is from mid-August through the end of October. The crop heads in May and the harvest occurs at the end of May through August. Hard Red Winter Wheat’s primary use is in bread making.
Kansas City Wheat futures provide a way to effectively manage the global price risk that Wheat merchandisers, producers, food processors, livestock operations, importers and others have related to the purchase or sale of Wheat. Futures contracts provide opportunities to identify short and long-term cyclical price and volatility patterns. Kansas City Wheat futures traders are able to take advantage of arbitrage and spread opportunities with other commodities, including related grains, oilseeds and livestock.
The Kansas City Wheat contract trades at the Chicago Board of Trade (CBOT), part of the CME Group. The electronic futures contract trades on Globex from 7:00 PM CT to 7:45 AM Sunday through Friday. As well as the primary hours of 8:30 AM CT to 1:20 PM Monday through Friday.
One Kansas City Wheat futures contract is 5,000 bushels, or approximately 136 metric tons. The previous settlement price (March 04, 2014) for May 2014 Kansas City Wheat futures was 709’4, or $35,475 per contract. The most common contract symbol is KE.
One futures contract price increment or “tick” is ¼ cents per bushel. A one “tick” move is $12.50. The next tick after 709’4 upward is 709’6 followed by 710’0. Therefore, a one-cent move, from 709’0 to 710’0, is $50. 709’4 reads as seven dollars and nine and a half cents.
The performance bond or initial margin requirement to initiate one futures contract is $1,925 (as of November 11, 2015). To control that futures contract going forward the maintenance margin becomes $1,750 (as of November 11, 2015).
The Daily Price limit is currently $.35 per bushel expandable to $.55 when the market closes at limit bid or limit offer. For example, if the market closes at limit offer, or 674’4, on March 5, 2014, the next session’s Daily Price Limit would increase to $.55. If the following trading session fails to close at limit offer, the next session’s Daily Price Limit reverts to the $.35 limit. The exchange resets daily limits for Wheat in May and November of each year, based on a percentage of the average settlement price of benchmark contracts during a roughly nine-week observation period.
The futures contract month listings are March (H), May (K), July (N), September (U), and December (Z). “New crop” refers to the July futures contract as that is the month in which Hard Red Winter Wheat in the ground is harvested. “Old crop” refers to the tradable contracts covering last year’s crop.
The futures contract’s Last Trading Day (LTD) is the business day prior to the 15th calendar day of the contract month. The May 2014 Kansas City Wheat futures contract LTD is May 14, 2014 for example. The First Notice Day (FND) for that same contract is April 30, 2014.
Significant fundamental reports to be aware of are the United States Department of Agriculture (USDA) Crop Progress reports, typically released at 3:00 PM CT on Monday’s, and the periodic Crop Production and USDA Supply/Demand reports, typically released at 11:00 AM CT.
This particular market has the potential for volatile and large trading ranges due to fundamental factors.
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