How to invest in wheat in 2023
On this page you will learn how wheat investing works. We explain the many reasons you may want to invest in it, how and where to invest in it, and offer an outlook for the year ahead. Continue reading to learn more about this grain, which keeps on gaining traction and becoming one of the most traded agricultural commodities.
Where can I invest in wheat online?
If you’re ready to jump in and start investing straight away then check out the table of brokers below. Selected by our commodity experts, these platforms are some of the best places to invest in wheat. Click any of the links to sign up in just a few minutes.
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Why invest in wheat?
For many people the primary reason to invest in commodities such as wheat is to hedge against inflation. Although, there are a range of other reasons why putting your money in the wheat market is a good idea and in the section below we’ve highlighted some of the top ones.
- Hedge against inflation. The price of many soft commodities like wheat tends to go up when inflation increases. Inflation is when money loses value over time and results in a higher cost of living. Investing in wheat when inflation rates are on the rise is a good way to protect, or ‘hedge’ against it.
- Portfolio diversification. Many investors usually stick to stocks, shares, and bonds. The addition of wheat is an easy way to diversify a portfolio and include a commodity that’s used worldwide. Including wheat allows you to spread your money across different investments, while bolstering your portfolio when the stock market is down.
- Currency speculation. A lot of commodities are priced in US dollars and that’s the case for wheat. Analysing the dollar can help time your investment into it because if the dollar is strong, wheat importers will be faced with higher costs pushing its price higher, while a weak dollar would result in cheaper wheat.
- Global demand. Wheat is widely used around the world for both humans and livestock. Developing countries who have growing populations are expected to increase their consumption of wheat as it’s a relatively cheap grain. Investing in it provides a way to capitalise on population growth.
5 top tips for investing in wheat
Investing in wheat is a straightforward process and if you want to get started, you can follow the steps below.
- Decide on an investment strategy. Before you start, you’ll need to decide if you are going to be a passive or active investor. You should also think about how much risk you are willing to take on, as this will guide you towards how to invest.
- Do your research. Conducting research into the wheat market will help you in choosing the right method for investing in it. Further down this page we’ve explained the different ways you can enter the wheat market.
- Set a budget. You may know how much you are prepared to risk and its a good idea to set a budget. It goes without saying to never risk more than you can comfortably afford to lose.
- Choose between the long term and short term. While researching the market you may have determined a future outlook for wheat. Choosing between the long and short term can help you pick the right investment type.
- Find an investment platform. Wheat is a widely traded commodity and lots of brokers offer it, although some are better than others. At the top of this page we listed a few of the top ones around for wheat investing. Bear in mind that you’ll need to consider the trading hours for wheat. Most markets close from Friday to Sunday evening.
Ways to invest in wheat
Investing in wheat can be done through a range of different methods, from buying stocks to wheat trading using ETFs, funds or futures. Below we’ve explained the ways in which you can invest in wheat and highlighted the benefits of each one.
Invest in wheat stocks
If you don’t want to invest in wheat directly, you can consider investing in companies that are involved in any aspect of wheat production. There are currently no pure play wheat businesses available to invest in, although there are many agricultural companies who include wheat production as part of their operations. Check our selection of the best wheat stocks to buy.
Invest in wheat ETFs
Investing in ETFs is the easiest way to gain exposure to wheat. Exchange traded funds that track the price of wheat, or include agricultural business make an easy and cost effective way to speculate on the price of wheat. There is only one ETF that directly tracks wheat’s price, although there are many agricultural focused ETFs available.
Invest in wheat mutual funds
Mutual funds are similar to ETFs and investors can buy shares in them. Although, a mutual fund is managed by a professional fund manager who buys and sells assets according to their own expertise. There are no pure wheat mutual funds, however there are a number focused on the wider agricultural sector, which gives some exposure to the wheat market.
Invest in wheat futures
For investors wanting to speculate on the short term price changes, wheat futures are the most common approach. Futures contracts are an agreement to make a trade at a pre agreed date in the future. Trading wheat futures is a difficult task and requires in-depth knowledge of how the wheat market works and is suited to experienced investors.
How does the wheat market work?
It works like most other markets and its supply and demand have a direct impact on its price. Futures contracts are also an important part of commodity markets as thats where the majority of speculation and commercial buying or selling occurs. Below we’ve highlighted some of the key drivers that move the price of wheat.
- Weather. It’s no surprise that the climate in wheat growing regions impacts its price. Extreme heat or rainfall can reduce crop yields, which in turn can lower supply. Wheat is grown worldwide, although Europe, China, and India are its largest growers. Keeping tabs on weather conditions in these regions could help with monitoring potential supply shortages.
- Geopolitics and supply. Like weather, wars and domestic issues can cause serious disruption to global supply chains. For instance, almost a third of the world’s wheat is grown in Russia and Ukraine, so the Russian invasion in February 2022 sent prices sky high and prompted fears of widespread wheat shortages. Shortly afterwards, the wheat price became registered high volatility in the first half of 2022, and it became one of the favourite commodities for day traders.
- Population growth. Wheat’s popularity around the world has resulted in its demand growing for years. As the global population increases, wheat consumption will likely increase too. Developing nations tend to accelerate this demand as population growth is seen highest in these regions.
- US Dollar. The majority of soft commodities are priced in US Dollars and that is the same for wheat. A strong dollar against other currencies would make the price of wheat higher as importers would have to pay more. While a weaker dollar would decrease the price of wheat.
- Stockpiling. Many countries stockpile a range of grains including wheat and any changes in levels of wheat held can impact its price. China is the world’s largest grain stockpiler and holds two thirds of global grain reserves. China’s stockpiling needs to be considered as an important factor in wheat price.
When should you invest in wheat?
It will depend on your investment goals and strategy. At the moment, wheat prices are extremely volatile in the aftermath of the Russian invasion of Ukraine and it’s difficult to predict how the war is going to play out. It’s a situation best suited to traders or those who are happy to take more of a risk.
In general, however, one of the most opportune times to invest in wheat is when inflation rates are on the rise. As we’ve already mentioned, commodity prices tend to rise along with inflation, so investing in wheat when inflation is on the rise often makes for a good strategy.
You may also want to consider the factors we discussed in the section above. For example, poor weather conditions in China, India, or Europe could drastically reduce crop outputs and drive wheat prices higher. It is also worth monitoring the US dollar and investing in wheat when it is strong against other currencies.
Is wheat a good investment in 2023?
It may be, but there are a few things to take into consideration before making a decision. The global political and economic outlook for the next year is uncertain, with the war in Ukraine ongoing and global inflation rates on the increase. While that mix suggests wheat prices could go even higher, extremely high food prices are difficult to sustain for long. Suppliers might choose to switch away from wheat and to other, cheaper grains, or governments may intervene rather than leave their populations to fend for themselves.
What should I do now?
Now that you might be ready to start investing in wheat, it would be a good idea to register with a broker. You can click the blue button below to be taken to our list of expertly selected platforms offering wheat. Alternatively, if you want to improve your investing and trading skills, you can check out any of our free courses using the links below.
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