About Wheat (W)

A rose by any other name may be a rose, however Wheat by any other name is not. There are three main types of Wheat with active, liquid futures contracts traded on them: Soft Red Winter Wheat (Chicago Board of Trade), Hard Red Winter Wheat (Kansas City Board of Trade), and Hard Red Spring Wheat (Minneapolis Board of Trade). In futures vernacular, each type of Wheat is typically referred to by the city in which it is traded, such as Chicago Wheat is used instead of Soft Red Winter Wheat, while Kansas City and Minneapolis refer to Hard Winter and Spring respectively.

Though their are many different varieties of Wheat grown throughout the world, such as Soft/Hard/White/Red, there are only two main classifications of Wheat: Winter and Spring. Winter Wheat is Wheat which is planted in the Winter, hence the name. Spring Wheat is planted in the Spring. Each particular type of Wheat: Hard Red, Soft Red, Durum and White requires slightly different climatic conditions for growth and is best suited for different types uses.

The most prevalent class of Wheat grown in the Untied States is Hard Red Winter, or Kansas City Board of Trade Wheat. Hard Red Winter Wheat is grown predominantly in Kansas, Nebraska, Oklahoma, and the Texas Panhandle. The cold, sub zero winters and the general lack of precipitation make these regions of the country ideal for Hard Red Winter Wheat production. The primary use of Hard Red Winter Wheat Flour is for bread making. Futures trading in Hard Red Winter Wheat is done on the Kansas City Board of Trade (KCBT).

Soft Red Winter Wheat futures, the most actively traded Wheat futures contract, are traded on the Chicago Board of Trade (CBOT). The first modern futures contract was for Soft Red Winter Wheat. Soft Red Winter Wheat is grown in diverse areas of the country: Central Texas Northeast towards the Great Lakes and then east to the Atlantic. Soft Red Wheat is grown in more humid environments, not suited to hard grain production. The flour from Soft Red Winter Wheat is used to make cakes, cookies, snack foods, crackers, and pastries.

Hard Red Spring Wheat is grown in the Northern Plains states where the winters are too severe for winter wheat production, but the rich black soil and the dry, hot summers make it ideal for this type of wheat. The major producing states are Montana, Wyoming, North and South Dakota as well as Idaho. This high grade Wheat is suitable for milling and used primarily in breads. Futures on Hard Red Spring Wheat are traded on the Minneapolis Board of Trade.

The other varieties of Wheat grown in the United States are Durum, and White Wheat. Durum Wheat is the hardest of all the wheat kernels, and contain the highest proportion of protein of any of the classes of wheat. Used primarily in the production of pasta, spaghetti, macaroni and other various pastas. Due to its high protein content, Durum wheat flour is not suitable for breads or pastries. Both Winter and Spring Wheat strains are grown in the United States. Grown primarily in Michigan, New York, Oregon, and Washington. White wheat accounts for the least amount of acreage grown of any of the Wheat varieties. White wheat can, and is often substituted for Soft Red Winter Wheat, as its protein content and texture mill into a flour which is suited for similar purposes: cakes, cookies, snack foods, crackers, and pastries.

Each of the exchanges does specify a specific type and grade of Wheat for delivery against its contract, most of the exchanges allow for substitutions at variable price differentials (premiums or discounts). Because of the major differences in the production cycle and uses of Spring and Winter Wheat, we have broken them down separately on the following pages.

Wheat is one of the oldest and most widely used food crops in the world. The five main classes of wheat grown in the US are Hard Red Winter, Soft Red Winter, Hard Red Spring, Durum, and White. The prominent class of Wheat grown in the US is Hard Red Winter Wheat, which accounts for nearly half of US production. The Chicago Board of Trade Wheat contract is on the second most widely grown variety of Wheat: Soft Red Winter Wheat, while the Kansas City Board of Trade contract calls for delivery of Hard Red Winter Wheat.

Winter Wheat is planted in the fall, goes into dormancy during the winter and is harvested for grain during the following spring. During ideal weather conditions for early fall growth, much of the Winter Wheat (KCBT) grown in the southern plains is grazed by Cattle prior to the wheat entering dormancy for the winter. Wheat is usually planted in September or early October when the soil is sufficiently moist to germinate the seed. Late season warm spells are a potential problem during planting, as the warmth allow insects to survive long enough to eat the wheat seeds. After planting, freezing temperatures and a blanket of snow protects the seeds while they lay dormant awaiting spring thaw.

Early warm weather is another hazard the seeds must face. Early thaws followed by a frost can cause the soil to heave, severing the stem from the root system. Wheat traders watch the weather very closely in mid February for signs of early thaws followed by frosts. As Winter Wheat’s protective blanket of snow disappears, the small Wheat shoots, which look like grass, begin to grow taller and begin to form a head. The head of a wheat stalk are small seeds or kernels which is what is milled into flour.

Usual Planting Dates for Winter Wheat

(Top 5 producing States)

Dates based on the December 1997 USDA Agricultural Statistics Board Usual Planting and Harvesting Dates report

During the heading stage of development the wheat crop is the most vulnerable to damage. In order for Wheat to head it must pollinate, which requires adequate precipitation as well as seasonable temperatures. In normal years, Winter Wheat pollinates in early May. Typically, as the Wheat crop becomes revisable as the snow melts away, prices tend to decline. The risk premium from heaving built into prices tends to erode quickly during February. During March and April, as the crop develops, fear grips the trading pits of Kansas City and Chicago and the price of Wheat tends to rally on pollination concerns. After pollination the crop tends to complete its heading, and is left to dry in the heat of summer.

Like other crops, Wheat uses most of its available resources in building the head, so the root system tends to die and the grass-like Wheat begins to dry in the fields. Excessive rains and below normal temperatures after heading is complete have produced minor rallies in June on fears that the Wheat Crop is too wet and therefore will not have adequate protein content. But these rallies tend to be little more than minor retracement during the fall from the May highs to the pre harvest lows of mid July. The Winter Wheat harvest typically takes place from late May through Early September, with the bulk of the crop being harvested between early June and mid July.

Excessive rains during harvest can slow down the harvest process, though very rarely does yield suffer much in years with a protracted harvest. The greatest damage to Winter Wheat during the spring and summer is from disease. Hot and humid conditions create ideal growing for the mold based diseases which have commonly afflicted Wheat in recent years. However, outbreaks of Wheat diseases, such as karnel bunt, have been very localized in recent years and probably do not present a real danger to modern agriculture.

Like other grain markets, Winter Wheat futures tend to gain in price when the crop is most vulnerable to damage. During emergence, during dormancy when the crop is subject to heaving, and prior to pollination. The old grain traders saying of " Grain Crops are killed 3 times a year" is true for Winter Wheat as well:

. . . Once during the Fall when it is too hot/cold/wet/dry for planting or the crop to emerge

. . . Once during the Winter on fear of heaving, or radical changes in soil temperatures

. . . Once during the spring on fear that it is too hot/cold/wet/dry for pollination

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