Did you know that 20% of the world’s calories come from wheat? And the price of wheat is determined by the commodities market and varies significantly over time. Wheat prices have soared 46% since the beginning of February, following the beginning of the Ukraine conflict. But is it possible for ordinary investors to invest in wheat and benefit from rising prices?
In this guide, we take a look at how grain commodity investing works. We also answer common questions like “why are wheat prices rising?” and “is it worth investing in wheat stocks?”
Some UK wheat stocks include:
If you’re keen to get stuck in and start investing in wheat you’ll first need to choose an investing platform. You can use a share dealing account, ISA or a pension scheme. Once you’ve picked your investing platform you can start planning which fund, commodity or stock you want to invest in.
ETFs or exchange traded funds can be a good way to diversify your investment by spreading it between different underlying companies. There are two types of wheat ETF. Some track a commodity index like the Bloomberg Wheat Subindex, others invest in underlying companies in the agriculture sector. Here are some pros and cons of investing in wheat through an ETF:
It’s difficult to invest in wheat stocks because farms tend to be family run and privately owned. However, it is possible to invest in companies that are part of the broader agriculture sector, process food, supply fertiliser, pesticides or farming machinery.
Investing in wheat and grain futures is extremely risky. You’ll be committing to buy wheat in the future for a set price. If prices go up, then you’ll make money, but if they go down you’ll still have to buy at the agreed price. You may be able to buy futures using your share dealing account.
Here are some pros and cons:
Archer-Daniels-Midland, commonly known as ADM, is an established American multinational company with businesses in food processing and commodities trading.
ADM is one of the largest global agriculture businesses and is diversified across many products including, processing oilseeds and other agricultural commodities and a fast growing nutrition business.
As of 16 March 2022 ADM’s share price is up 30.8% in the last 6 months and up 103.3% in the last 5 years. Archer Daniels Midland has a market cap of $46.8 billion and a dividend yield of 1.9%.
Bayer AG is a German-based global pharmaceutical and life sciences company. It’s one of the biggest pharmaceutical companies in the world but it also trades in agricultural high-value seeds, innovative chemical and biological pest control and biotech products.
As of 16 March 2022, the share price is up 24.0% in the last 6 months but down 46.1% in the last 5 years. Bayer has a market cap of $55.8 billion and a dividend yield of 3.6%.
Nutrien is a Canadian fertiliser company and is the largest producer of potash and the third largest producer of nitrogen fertiliser in the world. It has 2,000 retail locations in seven countries and more than 23,100 employees.
As of 16 March 2022, the share price is up 52.1% in the last 6 months and up 77.1% in the last 5 years. Nutrien has a market cap of $54.2 billion and a dividend yield of 1.9%.
Wheat prices rose an eye watering 46% in the last few weeks. They have increased from €260 per tonne at the beginning of February 2022 to €380 on 16 March 2022. And U.S. wheat futures have also climbed past previous record highs set in 2008.
It’s mainly due to the ongoing conflict in Ukraine. Russia was the world’s leading wheat exporter last year so the conflict is causing prices to soar. Russia has suspended grain exports to neighbouring countries to strengthen its food security and exports from Ukraine have also dried up.
Prices are also affected by the continuing energy crisis. Food producers and farmers across the globe are facing increasing energy costs and rising fertiliser prices. Energy price hikes are making it more expensive to harvest, transport and store wheat and other foods.
Experts predict prices could continue climbing in the future as the energy crisis shows no signs of letting up. Many other factors can affect wheat prices like adverse weather, or changes in export policies.
The world’s biggest exporter of wheat in 2021 was Russia, who exported around 20% of the world’s wheat, according to data from the U.S. Department of Agriculture. Other big exporters include the United States, Canada, France and Ukraine.
Most wheat from Russia and Ukraine is imported by countries in the Middle East and North Africa including Egypt, Turkey, Lebanon and Tunisia.
The world’s biggest consumer of wheat is China, followed by the European Union, India, Russia and the United States.
Sadly, any rise in prices is likely to hit poor countries the hardest. That’s because poorer households in developing countries can spend as much as 40% of their income on food.
46% of people we surveyed said they already invest in wheat stocks or would consider investing in wheat stocks.
| Response | |
|---|---|
| I would consider it | 41.33% |
| Not sure | 29.89% |
| I wouldn't consider it | 23.99% |
| I already invest in this | 4.8% |
In times of stock market volatility, experts often suggest commodities as a safer option than stock market. However, this isn’t always the case. In fact, many commodities prices, including wheat prices also fluctuate wildly. As well as the ongoing conflict in Ukraine, other factors like adverse weather, fertiliser costs and energy prices also significantly affect wheat prices.
If you do decide to take the plunge and invest in wheat, then do your research and make sure you don’t put all your eggs in one basket. Aim to invest in a diversified range of companies, assets and geography.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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