At the beginning of March, wheat prices skyrocketed. Not only the war in Ukraine may have been the cause. More and more non-professional investors participate in commodity markets through a so-called ETF. That can strongly influence the price. Not everyone believes in the power of the 'common' man on the wheat market.
On Monday, March 7, the March wheat contract on the CME (also known as CBoT) shot up to $523,69 per tonne. Converted to €480,35. There was no turnover because. The futures market immediately reached its trading limit for the day, after which trading was frozen. The Matif does not have such a 'handbrake' and recorded a price of €422,50 per tonne for the March contract that day. An absolute record. The next day the price fell by €27,50 per tonne.
It took a week before wheat could be traded on the CBoT again. In the previous five days, the trading limit for that day was always reached. Moreover, no one was willing to sell contracts at a price lower than that day's limit.
Private investors
It is possible that the actions of private investors are an important reason why the American stock market shot up so much. This is stated by journalists from The New York Times background article. For a long time, trading in (agricultural) raw materials was specialist work for people who had both feet in this sector. This has changed with the advent of ETFs, or Exchange Trade Funds.
An ETF is a bit like an investment fund, but works slightly differently. Where an investment fund tries - under the guidance of a manager - to achieve a return that is higher than the stock market, the ETF does nothing other than shadow the primary market (for example wheat). Their results are therefore never higher than the primary market, but also never lower. That makes them a safe option for investors. Even more importantly, the costs of such an ETF are very low, making it easy to get started.
Does wheat follow Gamestop?
A breeding ground for self-proclaimed stock market gurus is the American Reddit forum. These sometimes unguided projectiles can sometimes completely blow up a course for no good reason. The rate of Gamestop is an example of that. The share price of this game store rose by 1.700% when the IPO was hyped by Reddit participants. Insiders in the grain world fear similar practices with wheat.
Shortly after the Russian invasion of Ukraine, interest in the price of the Teucrium Wheat Fund arose on the Reddit forum. An ETF that trades wheat on the CBoT. Private traders (also known as retail investors) can participate in the ETF via the NYSE and thus indirectly manipulate wheat. Teucrium itself suddenly saw a lot more at the beginning of March interest in their fund. Due to a change in regulations, it can now issue unlimited shares.
Record amount traded
Not everyone agrees on the influence of private individuals. The great interest is clear. Teucrium converted a volume of 4 million contracts in one day (March 27), compared to normally 300.000 to 500.000. Good for a trade value of $183 million. The old record was $35 million in one day.
Teucrium itself thinks that things are going well with the interference of private individuals in the raw materials market. Of all May contracts converted by the CME on March 4, 'only' 3% were traded by them. This is what Jake Hanly, director of operations at Teucrium, told the New York Times. The CME did not want to respond to questions about this from journalists. Andrey Sizov, a well-known international grain analyst, also does not think that the impact has been significant in pushing up the wheat price. He also sees speculative investors such as hedge funds investing more in commodities such as wheat. Some of these funds were betting that war was not coming. When that did happen, they had to buy new contracts to limit losses.
News already incorporated into the price
Sizov does not expect to see fireworks again on the wheat market as ignited in early March. "The bad news about Ukraine's agricultural export opportunities has already been incorporated into the market. Countries are now trying to calculate how they can compensate for the loss of this wheat."
In addition to Teucrium, there is also at least one ETF that trades wheat on the Matif. As mentioned, the Euronext commodities market in Paris does not have an instrument to freeze trading. Yet the price of wheat in Europe has not shown any strange movements that cannot be explained by the war and its consequences. This substantiates the idea that retail investors have little or no control over the wheat price.