Wheat prices are on a roll. Just this morning they hit a two-year high as traders panicked about the state of the drought-stricken Black Sea crop. Prices have ticked up on both sides of the Atlantic with contracts for December delivery up 3% in Chicago in just a few hours and up 5% in Paris. Overall, as the FT notes, wheat prices in the US are up 70% in little over a month.
You can tell things are pretty bad when the UN feels compelled to stave off a general panic wheat is after all a staple crop by saying that the risk of a repetition of the 2007-8 food crisis is small.
The problem is threefold. First, supplies are being hit hard by droughts and poor harvests everywhere from Russia to the US and Canada. Black Sea yields are particularly erratic at the moment with forecast versus actual figures showing their widest gap for 20 years, according to the UN Food and Agriculture Organisation's Abdolreza Abbassian.
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Second, real demand is being stoked by rising requirements from ever more wealthy emerging markets such as China. And third of course, speculators are sensing an easy win.
So how to play wheat? One option is an exchange traded fund that either focuses on one commodity such as wheat or a basket of them. The trouble is the performance of these funds can be hard to predict, particularly once you take exchange rates into account. A more direct play is a spread bet via a firm such as IGindex.
- Spread betting The easy way to geared, tax-free returns
- Forex trading- How to profit from currency movements
Just a word of warning though commodities are highly volatile. This is no place for widows and orphans. So only bet small stakes initially and use stop losses to limit the damage from an upbet should the price plummet. Also get to know the contract you are betting on. For example you can bet on wheat contracts in London or Chicago. One wheat future at the Chicago Board of Trade represents 5,000 bushels. To spread bet the equivalent of one US future at a spread betting firm IGindex simply calls it the "wheat" bet would require a bet of £25 per point.
Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.
He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.
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