Introduction:

Commodity markets are markets that track the price of real commodities, or valuable trading items. The trade in commodities is one of the main foundations of the global trading system. For the serious investor, knowledge in how to trade commodities is vital. Great profits can be made if an investor has an in depth knowledge of the issues surrounding globally traded commodities, and knows the mechanics of how to trade them. But though this trade has a long tradition, innovations are still occurring: advances in technology mean that new commodities are coming onto the market all the time, while the advent of online commodity trading means that access to global markets is now available to even private investors with a small amount of capital. This article focuses on the history and current debates regarding global commodity markets. The modern commodity markets have their roots in the trading of agricultural products. hile wheat and corn, cattle and pigs, were widely traded using standard instruments in the !"th century in the #nited $tates, other basic foodstuffs such as soybeans were only added %uite recently in most markets. For a commodity market to be established there must be very broad consensus on the variations in the product that make it acceptable for one purpose or another. The economic impact of the development of commodity markets is hard to overestimate. Through the !"th century &the e'changes became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to e'panded interstate and international trade.& (ast few years commodity prices specially grain commodities prices have large ups and downs. That)s why the world grain market has effected largely. *n this article we will focus mainly the trading of agricultural commodities like corn and wheat.

COMMODITIES
Commodities are a range of primary resources that can be traded in %uantifiable amounts and have minimum %uality standards. The establishment of such basic parameters means that the commodities can be traded in large volumes or numbers in international commodity e'changes, with traders being reasonably certain that the commodities being traded are not deficient. Commodities may be divided into a number of classifications: agricultural commodities +corn, coffee, cocoa, pork bellies, fro,en orange -uice, etc., energy commodities +oil, gas, etc. and metal commodities +gold, silver, iron ore, copper, etc.. There are also a number of commodities that fit no classification. The spread of technology has allowed the introduction of new commodities, as technology for producing hi/tech products is disseminated around the world. $ilicon chips are one such e'ample, and a new commodity e'change dealing in nanomaterials +the *ntegrated 0ano/$cience Commodity 1'change. is due to launch in early 23!!. *n addition, the recent focus on the environment has led to the establishment of e'changes that trade in environmental commodities. This includes trading in carbon emissions +both carbon offsets and carbon credits. and renewable energy certificates.

COMMODITY MARKET
Commodities are traded on the commodity market. This market is comprised of a number of international commodity e c!anges, notable ones being the Chicago 4ercantile 1'change, the 0ew 5ork 4ercantile 1'change and the (ondon 4etal 1'change. 6fficials of each e'change act to regulate transactions, amongst their responsibilities being the duty to ensure that the commodities traded meet minimum %uality and %uantity standards. The e'changes themselves are regulated by the appropriate national regulatory bodies.
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7 knowledge of the workings of these e'changes and the commodities they trade are essential for any investor wishing to learn how to trade commodities.

"argest commodity E c!ange

E c!ange C41 Group Tokyo Commodity 1'change 05$1 1urone't 9alian Commodity 1'change 4ulti Commodity 1'change *ntercontinental 1'change

Country #$7 8apan 1# China *ndia #$7, Canada, China, #:

Early !istory o# commodity markets

;istorically, dating from ancient $umerian use of sheep or goats, other peoples using pigs, rare seashells, or other items as commodity money, people have sought ways to standardi,e and trade contracts in the delivery of such items, to render trade itself more smooth and predictable. Commodity money and commodity markets in a crude early form are believed to have originated in $umer where small baked clay tokens in the shape of sheep or goats were used in trade. $ealed in clay vessels with a certain number of such tokens, with that number written on the outside, they represented a promise to deliver that number. This made them a form of commodity money / more than an *.6.#. debt but less than a guarantee by a nation/state or bank. ;owever, they were also known to contain promises of time and date of delivery / this made them like a modern futures contract. <egardless of the details, it was only possible to verify the number of tokens inside by shaking the vessel or by breaking it, at which point the number or terms written on the outside became sub-ect to doubt. 1ventually the tokens disappeared, but the contracts remained on flat tablets. This represented the first system of commodity accounting. Classical civili,ations built comple' global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of %uality and timeliness. Considering the many ha,ards of climate, piracy, theft and abuse of military fiat by rulers of kingdoms along the trade routes, it was a ma-or focus of these civili,ations to keep markets open and trading in these scarce commodities. <eputation and clearing became central concerns, and the states which could handle them most effectively became very powerful empires, trusted by many peoples to manage and mediate trade and commerce.

Si$e o# t!e market

The trading of commodities consists of direct physical trading and derivatives trading. 1'change traded commodities have seen an upturn in the volume of trading since the start of the decade.

This was largely a result of the growing attraction of commodities as an asset class and a proliferation of investment options which has made it easier to access this market. The global volume of commodities contracts traded on e'changes increased by a fifth in 23!3, and a half since 233=, to around 2.> billion million contracts. 9uring the three years up to the end of 23!3, global physical e'ports of commodities fell by 2?, while the outstanding value of 6TC commodities derivatives declined by two/thirds as investors reduced risk following a five/ fold increase in value outstanding in the previous three years. Trading on e'changes in China and *ndia has gained in importance in recent years due to their emergence as significant commodities consumers and producers. China accounted for more than @3? of e'change/traded commodities in 233", up on its A3? share in the previous year. Commodity assets under management more than doubled between 233= and 23!3 to nearly BC=3bn. *nflows into the sector totaled over B@3bn in 23!3, the second highest year on record, down from the record BD2bn allocated to commodities funds in the previous year. The bulk of funds went into precious metals and energy products. The growth in prices of many commodities in 23!3 contributed to the increase in the value of commodities funds under management.

Commodities trading
T!e trading o# commodities is a com%le %rocess& and !as traditionally 'een undertaken 'y %rivate traders and commodity 'rokers( )owever& recent ra%id growt! in t!e availa'ility o# online commodity trading !as allowed many amateur investors to trade on t!e commodity market #rom t!eir own !ome or 'usiness(

Commodity trading is a method of investing that involves the international trading of primary goods. These primary goods, or commodities, have several characteristics. First, commodities must be standardi,ed, both in form and in %uality. This uniformity is essential for there to be a set price on commodities regardless of where they are produced or who produces them. The cru' of commodities trading concerns how this set price fluctuates over time. 7lso, standardi,ation
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over the global commodity market is necessary in order to comply with the standards set by regulatory bodies for trade. $econdly, commodities must be in a raw, basic state +hence the title Eprimary) goods.. *n order for commodities to be applicable to the largest possible market, they must be in the simplest possible form. This allows them to be molded and manufactured into whatever product the buyer produces. For e'ample, a miller wishing to sell his produce would have access to a much larger market if he sold w!eat rather than flour, for he would interest buyers looking to produce all wheat/based products. Commodity trading is done either on spot markets or in futures.

S%ot trading
$pot trading is any transaction where delivery either takes place immediately, or with a minimum lag between the trade and delivery due to technical constraints. $pot trading normally involves visual inspection of the commodity or a sample of the commodity, and is carried out in markets such as wholesale markets. Commodity markets, on the other hand, re%uire the e'istence of agreed standards so that trades can be made without visual inspection.

*utures trading:

7s the name suggests, involves the buying and selling of contracts for certain commodities not to be delivered immediately but at some predetermined point in the future. Commodity trading has traditionally taken place in designated Econtract markets), such as the Commodities 1'change Center in 0ew 5ork, yet now is increasingly found on the internet through online commodity trading.

*orward contracts
7 forward contract is an agreement between two parties to e'change at some fi'ed future date a given %uantity of a commodity for a price defined today. The fi'ed price today is known as the forward price.
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*n essence, a futures contract is a standardi,ed forward contract in which the buyer and the seller accept the terms in regards to product, grade, %uantity and location and are only free to negotiate the price.

)edging
;edging, a common +and sometimes mandatory. practice of farming cooperatives, insures against a poor harvest by purchasing futures contracts in the same commodity. *f the cooperative has significantly less of its product to sell due to weather or insects, it makes up for that loss with a profit on the markets, since the overall supply of the crop is short everywhere that suffered the same conditions. hole developing nations may be especially vulnerable, and even their currency tends to be tied to the price of those particular commodity items until it manages to be a fully developed nation. For e'ample, one could see the nominally fiat money of Cuba as being tied to sugar priceF, since a lack of hard currency paying for sugar means less foreign goods per peso in Cuba itself. *n effect, Cuba needs a hedge against a drop in sugar prices, if it wishes to maintain a stable %uality of life for its citi,ens.

Delivery and condition guarantees

*n addition, delivery day, method of settlement and delivery point must all be specified. Typically, trading must end two +or more. business days prior to the delivery day, so that the routing of the shipment can be finali,ed via ship or rail, and payment can be settled when the contract arrives at any delivery point.

A+RIC,"T,RA" COMMODITIES
The largest classification of commodities traded on national and international commodity e c!anges is that of agricultural commodities. 7gricultural commodities are commodities that
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have their origins on farms and plantations, and are either primary products, or products that have undergone minimal processing, such as free,ing, cleaning or portioning into cuts. $ome agricultural commodities can also be referred to as soft commodities: this refers to the fact that they are grown rather than mined. $ome traders, however, do not refer to meat commodities as soft commodities, even though they have been farmed, preferring to classify them differently.7mong the agricultural commodities grain commodities are mostly traded.

+RAI- COMMODITIES
7mong the agricultural commodities grain commodities are the foundation of commodity trading, being among the first commodities to be traded when the modern system was set up. The primary commodities of this group are w!eat, corn, 'arley and roug! rice. These are traded on most of the world)s ma-or e'changes, and are traded in contracts of >333 bu +bushels., save for rough rice which is traded in contacts of 2333 cwt +hundredweight.. 6ur main concern is rises of corn and wheat prices worldwide.

CORThe most common variety of corn traded on the commodity market is known as field corn, or dent corn. This variety is higher in starch and lower in sugar than table corn, which is another popular variety. $weet corn is also popular, but field corn is known to account for appro'imately D3? of the corn grown in the #nited $tates, which itself produces over half of the worldGs corn. There are around =3 million acres dedicated to its production. Corn is traded in commodities e'changes under the ticker code of C, and sometimes traded electronically under the ticker code of HC. Trading in the corn market is appealing because of the wide scope of products for which corn is used for. *n addition to its primary use as a feed for livestock including cattle, hogs and poultry and its use as a food for human consumption, an increasingly large share of ,(S( corn

%roduction is now used to produce et!anol for fuel. 7mong the many widely used byproducts into which corn can be transformed are corn oil, corn starch and corn sweeteners used in soft drinks in the food area and absorbing agents for disposable diapers and adhesives for paper products and plastics in the non/food area.

Corn commodity.
The most striking feature of corn as a commodity is that it is one of the worldGs most versatile agricultural products, with myriad uses and therefore a massive demand. This is why it is sometimes collo%uially referred to as Gyellow goldG

Corn Trading.
The main commodity e c!ange for trading corn futures in the #nited $tates is the C41 Group subsidiary the Chicago Board of Trade +CB6T.. *n this e'change, corn trading occurs in both open auction and in electronic media, utili,ing the two different ticker codes mentioned above. *n 1urope, corn is traded on the -YSE commodity e'change, which is a purely electronic platform. 6ther e'changes that trade in corn futures include the Tokyo Grain 1'change +TG1., the $Io Jaulo based /M0* /oves%a, the 4arche a Terme *nternational de France +47T*F., the Et!io%ia Commodity E c!ange and *ndiaGs Multi Commodity E c!ange. Corn has a wide variety of applications and so corn options are utili,ed by many different business markets. Corn is primarily used as a food product for animals, with livestock feed accounting for the largest portion of its market share.

Corn 1roduction.

7merica is the largest producer of corn, where corn e'ports are generally seen as making the largest net contribution to the agricultural trade balance in the #.$, and are thus hugely important to the 7merican economy. ;owever, an interesting result of the 7merican dominance of the corn market is that corn prices worldwide are determined by relationships in the #.$ market, leaving the rest of the world to ad-ust accordingly. This allows farmers in countries such as 7rgentina to plant their own corn after the si,e of the crop in 7merica has been learned, which results in a dynamic market response to any shortage in 7merican crops. 6ther countries such as Bra,il, #kraine, <omania and $outh 7frica have all been known to be ma-or corn producers at various points at time, with 8apan being the worldGs largest importer of corn. 7s per the 8anuary 23!! report, the #$97 pro-ected a !.> bu.Kacre yield decrease, outweighing a 23!3 acreage increase of !=C,333 acres. Corn carryover dropped to DA> million bushels, which is =D million bushels lower than the 9ecember 23!3 report. Corn for grain production is estimated at !2.A billion bushels, down !? from the 0ov. ! forecast and >? below the record/high production of !C.! billion bushels, set in 233". This implies a stock/to/use ratio of >.>?, the lowest since !"">/"@. Larieties of corn are grown in a number of areas of the world including Bra,il, 7rgentina, China and elsewhere, but corn #utures traded at the CB6T are based on #.$. production. 4uch of the #.$. corn cro% is grown in the Corn /elt stretching from 0ebraska to 6hio and from 4innesota to 4issouri. The number of acres planted is a critical starting point for the si,e of the #.$. corn crop. Compared to other feed grains and soybeans, input costs for corn are higher, and prices for fertili,er, fuel and other input items sometimes influence farmers to plant other crops that have lower production risk. hen all goes well, corn can also produce the highest return per acre. 4ost of the corn in the Corn Belt is planted in 7pril/4ay. The most critical period for determining yields and the amount of corn %roduction in a given year is during 8uly, when pollination typically occurs. 7lthough other crops can recover from unfavorable weather conditions, corn is especially sub-ect to yield losses from hot, dry conditions during this 2/C week pollination period. 4ost of the corn harvest takes place in 6ctober/0ovember. 7bout "3/ "2 percent of planted acres are harvested for grain with the remainder being cut for silage, abandoned due to the effects of weather or not used for grain production for some other reason. The timing of these periods depends, of course, on the planting and emergence dates of the corn cro% and the progress the crop makes during the growing season.

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Corn Commodity 1rices

Corn commodity prices can be affected by a wide range of factors, but the two most important determiners of the price of corn options are the weather, as with any agricultural product, and the worldwide trend in energy prices, as a result of corn being used in the production of ethanol. 7ny overly wet or dry season will limit the yield of the crop that a farmer can harvest, whereas e'emplary weather will make yields much larger, decreasing cornGs price. hen trading in corn futures contracts, speculators also need to be aware of the viability of alternative biofuels, as although corn based ethanol is currently the cheapest biofuel, the advent of a cheaper alternative will usurp ethanol as the fuel of choice, and the demand for corn will subse%uently decrease. The C!icago /oard o# Trade is the premiere corn futures trading e'change in the world today.

The pricing unit for corn futures trading is dollars and cents per bushel with a minimum price fluctuation of one/%uarter of a cent per bushel or B!2.>3 for a full/si,e, >,333/ bushel contract.

The CB6T also offers a mini/si,ed corn futures contract of !,333 bushels +about 2> metric tons..

Corn futures contract months are 4arch, 4ay, 8uly, $eptember and 9ecember..

Corn commodity 1rice C!art.

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Corn Trading Strategy

hen trading corn #utures, seasonal analysis can be a powerful asset. 9epending on yield prospects and the total supply of corn available, corn #utures %rices tend to weaken going into and during the early part of the fall harvest season. Then as corn moves into grain bins and demand picks up from larger animal numbers and e'porters trying to get corn into position to ship, corn prices begin to pick up. $ometime after the first of the year, the so/called February break causes corn prices to decline again. 7s the planting season approaches and the market tries to buy corn acres, corn #utures %rices firm up until the market sees how the crop is doing. $ummer often produces a number of rallies and subse%uent setbacks based on weather or the latest forecast. 6bviously, the typical seasonal corn price pattern is sub-ect to change, depending on conditions, but it gives corn futures traders and hedgers a road map to follow by tracing the average behavior of the corn market in the past. The ma-or source of demand #or corn for years has come from feed for cattle, hogs and poultry, meaning corn #utures traders also needed to monitor animal numbers to gauge the e'tent of corn usage during the season. But corn has e'panded from -ust a feed and food source to become
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a ma-or fuel source in recent years as a result of government mandates to include ethanol in gasoline. Corn is the primary source of ethanol, causing a huge increase in the amount of corn consumed. That means corn #utures traders now need to watch developments in the energy market very closely for clues to corn prices for several reasons. The first is the price of crude oil and its impact on the consumption of gasoline. 6n the one hand, !ig! oil %rices su%%ort !ig! corn %rices. 6n the other hand, high oil prices could lead to less demand for gasoline and the need for et!anol in a recessionary environment. The second reason is government policy for energy prices and ethanol usage and any ad-ustments the government might make in those policies. #ntil another source for ethanol comes along, consider corn as one facet of the energy industry.

,(S( Corn Trade

The #nited $tates is the worldGs largest producer and e'porter of corn. Corn grain e'ports represent a significant source of demand for #.$. producers and make the largest net contribution to the #.$. agricultural trade balance of all the agricultural commodities, indicating the importance of corn e'ports to the #.$. economy. 6n average, corn grain +e'cluding popcorn or sweet corn. accounted for appro'imately !! percent of all #.$. agricultural e'ports by value during the !""3s. *n 233=, due to record e'ports of corn and other feed grains, that share grew to over !2 percent of the #.$ agricultural e'port value. The #.$. share of world corn e'ports averaged @3 percent during 233CK3A/233DK3= +the international trade year is 6ctober/$eptember. #.$. corn e'ports soared in the !"D3s from !C million metric tons at the start of the decade to a record @2 million in !"D"K=3. The growth was due to strong demand in <ussia as well as in 8apan, estern and 1astern 1urope, and developing countries. 6ver the ne't few years, #.$. corn e'ports dropped, bottoming out at C! million metric tons in !"=>K=@, due to poor global economic growth, e'pansion of the 1uropean #nion +1#., and #.$. government support for domestic corn prices.

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*n the second half of the !"=3s, #.$. e'ports rebounded, reaching @3 million metric tons in !"="K"3 because of large domestic supplies and more competitive prices as the government reduced commodity loan rates. 1'ports in the early !""3s declined again because of e'ternal factors, notably the breakup of the former $oviet #nion and rising Chinese corn e'ports. 7s biofuel production develops and e'pands, it will continue to put pressure on #.$. corn and other feed grain production, e'ports, livestock feeding, and other domestic uses. The #nited $tates e'perienced record demand and corn production during 233DK3= that pushed #.$ corn e'ports to @! million metric tons. ;owever, a slowing world economy and reduced demand for corn are pro-ected to dampen corn e'ports in the near future. 0onetheless, global population increases and consumer demand for meat products will continue to support e'panding feed grain e'ports in the long term.

2orld Corn Trade

hile the #nited $tates dominates world corn trade, e'ports account for only a relatively small portion of demand for #.$. cornMabout !> percent. This means that corn prices are largely determined by supply/and/demand relationships in the #.$. market, and the rest of the world must ad-ust to prevailing #.$. prices. This makes world corn trade and prices dependent on weather in the #.$. Corn Belt. ;owever, 7rgentina, the second/largest corn e'porter in most years, is in the $outhern ;emisphere. Farmers there plant their corn after the si,e of the #.$. crop is known, providing a %uick, market/oriented supply response to short #.$. crops. $everal countriesMincluding Bra,il, #kraine, <omania, and $outh 7fricaMhave had significant corn e'ports when crops were large or international prices attractive.

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China has been a significant source of uncertainty in world corn trade, swinging from being the second/largest e'porter in some years to occasionally importing significant %uantities. ChinaGs corn e'ports are largely a function of government e'port subsidies and ta' rebates, because corn prices in China are mostly higher than those in the world market. (arge corn stocks are e'pensive for the government to maintain, and Chinese corn e'port policy has fluctuated with little relationship to the countryGs production, making ChinaGs corn trade difficult to predict. orld corn trade peaked in !"=3K=!, with large imports by the $oviet #nion and 1urope. $ince then, corn imports by 1# countries have declined steadily as the Common 7gricultural Jolicylimited grain imports and 1# membership e'panded. For e'ample, as countries like ;ungary -oined the 1#, their corn shipments that previously went to the rest of the world were diverted to the 1#. 7t the end of the !"=3s, the $oviet #nionGs political and economic reforms led to a li%uidation of livestock herds and a drop in corn imports in the former $oviet #nion and 1astern 1urope. 9uring the same time period, 8apan, $outh :orea, and Taiwan continued to increase corn imports to support increasing meat production and consumption.

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9eveloping countries worldwide have continued to increase corn imports at a fairly steady pace since !"=3. This growth in developing/country imports has propelled global corn trade above D3 million metric tons each year since !"""K2333. Jro-ections for #.$. corn e'ports are in #$97Gs 7gricultural Baseline Jro-ections, which provides !3/year pro-ections for the #.$. and world agricultural sector for selected commodities. 8apan is the worldGs largest corn importer by far. hile producing almost no coarse grains, 8apan

is a very large meat producer, so the country is a steady buyer of corn, with attention to %uality. *n recent years, 8apanese imports of corn for livestock feed have stagnated, while imports for industrial use and starch manufacturing have increased. $outh :orea is the second/largest importer of corn in the world. $outh :orea is a price/conscious buyer, willing to switch to feed wheat or other coarse grains, and ready to buy corn from the cheapest source. 4e'ico is a growing importer. hile a large corn producer, 4e'ico processes much of its production of white corn into human food products, but has turned to imported yellow corn and sorghum for livestock feed to support increased meat production. Foreign demand is dependent not only on importing countriesG demand for feed ingredients but also on those countriesG internal policy changes that ad-ust prices andKor the availability of competing products. Coarse grains can often substitute for each other in feed use. Corn competes with other feed grains, as well as with wheat and no grain feedstuffs such as cassava. 6ilseed meal and other protein sources serve mostly as complements to grains, but can also be substitutes, especially those protein meals with low/protein content. Fle'ibility in many markets, however, is limited by the types of animals fed, the desire to maintain stable rations, local preferences, and import tariffs and laws. *mporters not only substitute among grains, but may switch suppliers of the same grain based on price, %uality, availability, credit, or other trade services. 7gricultural tariff schedules for orld Trade 6rgani,ation + T6. member countries report the current ma'imum permissible duties.

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Corn O%tions
Contract Si$e 6ne Corn futures contract +of a specified month. of >,333 bushels Tick 3minimum #luctuation4 Strike Intervals 1rice Trading shall be conducted for put and call options with striking prices in integral multiples of five +>. cents and ten +!3. cents per bushel. 4ore details on strike price intervals are outlined in <ule !373!.1. Contract 4arch +;., 4ay +:., 8uly +0., $eptember +#. N when the front month is not a standard option contract. The monthly option contract e'ercises into the nearby futures contact. For e'ample, an 7ugust option e'ercise into a $eptember futures position. Daily "imit 1rice B3.C3 per bushel e'pandable to B3.A> and then to B3.D3 when the market closes at limit bid or limit offer. There shall be no price limits on the last trading day. "ast Trade Date For standard option contracts: The last Friday preceding the first notice day of the corresponding corn futures contract month by at least two business days. Si$e !K= of one cent per bushel +B@.2> per contract.

Mont!s5Sym'ols 9ecember +H.O a monthly +serial. option contract is listed

For serial option contracts: The last Friday which precedes by at least two business days the last business day of the month preceding the option month.
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E ercise

The buyer of a futures option may e'ercise the option on any business day prior to e'piration by giving notice to the Clearing ;ouse by @:33 p.m. Chicago time. 6ption e'ercise results in an underlying futures market position. 6ptions in/the/money on the last day of trading are automatically e'ercised.

E %iration

#ne'ercised Corn futures options shall e'pire at D:33 p.m. on the last day of trading.

Trading )ours

C41 +1lectronic Jlatform. 6pen

Globe' @:33 pm / D:!> am and ":C3 am / !:!> pm central time, $unday / Friday Central Time 6utcry ":C3 am / !:!> pm 4onday / Friday Central Time

+Trading Floor. 1roduct Ticker C41 Sym'ols +1lectronic Jlatform. 6pen

Globe' 6HC CPClearing

6utcry C

+Trading Floor. E c!ange Rule These contracts are listed with, and sub-ect to, the rules and regulations of CB6T.

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2)EAT
2!eat is a grass that is cultivated worldwide. heat, while coming second to mai,e in total

production as a cereal crop, is in fact the most important food grain in the world, and therefore an essential component of the world)s commodity network. The global grain trade has always been of interest to investors because w!eat represents one of the single most important components of world food consumption. heat is one of the worlds key staple products, with about !3 percent of production traded on world markets each year.

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*t is believed that wheat may have been harvested for at least !2333 years, so its pedigree as a food item can not be underestimated. The crop itself is thought to have evolved from a type of wild grass native to the arid terrain of 7sia 4inor, although as it can flourish in many different climates it is not limited to that region. There are more varieties of wheat than any other cereal crops and these generally fall into two categories Q winter wheat and spring wheat Q depending in which season they were harvested.

2!eat Commodity
The most special feature of the wheat commodity must surely be its worldwide prominence as a foodstuff. *n terms of production, it sits between mai,e and rice as the second most produced food grain in the world, and yet despite these massive yields of it as a crop, the market never becomes saturated. The wheat market benefits from the fact that wheat can thrive in many different climates making production relatively easy, and it can be harvested in a relatively short space of time. hile such a ready supply may not always track with demand heat commodities in commodities without such worldwide appeal, in the case of wheat this works to its advantage as the demand for wheat is believed to be increasing to even higher levels. futures market will be acutely aware. can thus be guaranteed to have a buyer somewhere, a fact of which every trader in the wheat

2!eat Market Investing

*nvesting in w!eat #utures allows traders to participate in the agricultural markets without holding a physical market position. *nvesting in w!eat #utures also provides growers with a risk management tool to protect the price of their e'pected purchase or sale of physical grain. The #nited $tates is one of the worldGs largest wheat producing countries. 8apan is one of the largest importers of w!eat in the world, with imports originating from 7ustralia, Canada, and the #nited $tates. 1'portable wheat supplies are also available from 7rgentina, 1urope, #kraine and other areas of the world, depending on crop situations. This makes wheat a truly global market
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and allows traders to enter into a global environment to create a broad trading strategy using wheat alone or in combination with other grains.

2!eat *utures Classes and Trading

2!eat comes in several classes, which are used for special purposes. ;ard red winter w!eat is by far the largest class. :ansas is the largest producing state so weather there is a key factor that wheat traders need to monitor, but hard red winter wheat is grown in the Jlains from Te'as to $outh 9akota. This type of wheat is milled into flour used for breads. )ard red winter w!eat #utures are traded at the :ansas City Board of Trade. $oft red winter wheat is grown primarily in the eastern Corn Belt from 4issouri to 4ichigan and is milled mainly for flour used in crackers, biscuits and cookies. So#t red winter w!eat #utures and options are traded at the Chicago Board of Trade. )ard red s%ring w!eat is grown primarily in the 9akotas and 4innesota, with 0orth 9akota the largest producing state. This type of wheat is milled into flour used in breads, bagels and hard/baked goods. ;ard red spring wheat futures are traded at the 4inneapolis Grain 1'change. 7ll three of these classes of wheat futures are now traded electronically on the C41 Groups Globe' trading platform. $everal other classes of wheat are not traded as futures white wheat grown mainly in the Jacific 0orthwest and durum wheat used in pastas in the same areas as spring wheat.

2!eat 1rice
There are many factors that can affect grain market prices generally, and as with most grain commodity prices, the wheat price is particularly susceptible to changes in the weather. 4assive droughts or floods can negatively affect the supply of wheat, which will in turn increase the price of wheat options. *t is reasonable to conclude that wheat futures charts will generally always show an upward curve for demand, but sometimes factors such as a change in government policy concerning import can affect wheat trading, and therefore wheat commodity %rices. 0ew agricultural technologies can also affect the price of wheat, as production costs will vary depending on the method of harvest, and this can also sometimes create a temporary surplus of
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the crop, which could decrease spot prices for a time. *t is also worth considering the conditions affecting competitor commodities such as corn and roug! rice, as changes in demand or price for these can affect the wheat price. The main w!eat #utures contract at all three e'changes where wheat is traded is for >,333 bushels of the specified wheat although C41 Groups Chicago Board of Trade also trades a mini w!eat #utures contract of !,333 bushels. The minimum price fluctuation is !KA cent per bushel, indicating a change in value of B!2.>3 for the >,333/bushel contract. months. heat contracts are traded on 8uly, $eptember, 9ecember, 4arch, and 4ay calendar

2!eat 1roduction
S%ring w!eat is planted -ust prior to or in 7pril in the #nited $tates and Canada and generally follow the pattern of spring planted crops. These wheat crops do not go through a dormant stage but mature until harvested in late summer.. $owing of winter wheat begins in $eptember in the northern #nited $tates and continues through 6ctober in the southern regions. These &winter&
23

wheat crops will sprout and grow in the fall until a winter free,e occurs, and the w!eat will then become dormant until spring, when it breaks out of dormancy and matures until harvest in 8une/ 8uly. 7lternating free,ing and warming periods can damage the winter w!eat cro% and reduce yields, especially if there is no snow cover protection. #.$. wheat ending stocks for 23!3/!! have been pro-ected to be A3 million bushels lower in 8anuary 23!! as a reduction in e'pected feed and residual use is more than offset by higher pro-ected e'ports. 1stimates of global 23!3/ !! wheat supplies have been raised slightly this month, as increased beginning stocks are mostly offset by lower foreign production. orld wheat imports and e'ports for 23!3/!! are both raised slightly. Global 23!3/!! wheat consumption is pro-ected to be !.2 million tons lower, mostly reflecting reduced wheat feeding in the 1#/2D, the #nited $tates, and :a,akhstan.

2!eat Trading Strategy

(ike most crops, w!eat tends to follow a seasonal price pattern based on the weather. *f the winter wheat crop has broken dormancy in good shape and spring rains are sufficient, wheat prices may decline seasonally going into the harvest period as the market assumes an in-ection of new, larger wheat supplies. 7fter harvesting reveals the si,e of the crop, w!eat %rices tend to move up seasonally from 8uneK8uly through the end of the year. This seasonal price pattern is also the basis for a typical wheatKcorn spread that is, buy wheat in 8uneK8uly when prices presumably are at their lowest level of the season and sell corn, which often rallies to a seasonal high in mid/summer based on weather fears. .

Trading 2!eat C*Ds

Commodity markets are typically volatile, and therefore represent great opportunities for CF9 traders to apply leverage and make good profits. hile all agricultural commodities can e'hibit seasonal swings, it is the news of how well the crops are doing and any particular problems the farmers are e'periencing that can move the markets the most. The effect of climate change is likely to contribute to a general drift upward in pricing, as crops have traditionally been grown in

24

areas where the weather is favorable to them, and any change in weather will impact the yields. *n other words, itGs most likely that any news will be bad. heat is a good e'ample of a CF9 commodity play on mainstream news. 6ne CF9 is typically !33 bushels, which weighs around C tons. 7 futures contract covers >,333 bushels. ;ere)s a chart of the price in recent years.

5ou can see that wheat prices have -umped about D>? since 8uly, and the chart also shows clearly how volatile the price of wheat has become. 7ny trader with a CF9 account could have %uickly gained leveraged access to this market with a long commodity CF9. #p until 8uly 23!3, some e'perts were e'pecting wheat prices to fall because inventories were at a 2C year high and farmers were planting more wheat. The news in 7ugust that <ussia was banning e'ports changed that, and some are now looking for a year like 233=. Canada, another ma-or e'porter of wheat, is also reporting very low yields, perhaps down to 2332 levels. $ome have also attributed the recent spike in the dollar price for wheat to the declining value of the #$ dollar. Certainly, the #$ dominates the market and is the worldGs biggest wheat e'porter. France is 1uropeGs biggest grower of wheat, but does not appear to be able to have the capacity to gain much market share against the #$ to make up the shortfall from <ussia. *t is also handicapped in that most of its wheat is GsoftG wheat which is more suited to making pastries than bread. The Germans have recently bought GhardG wheat from the #$ for the first time in three years.
25

From a consumer point of view, the increasing price of wheat should not affect bread prices too much, as wheat only accounts for !2? to !A? of the cost. Farmers around the world are facing a difficult decision about how much wheat to plant, as itGs still not clear how much 7ustralia is able to make up the shortfall. The 7ussie crop was looking good, but there has been a spell of dry weather. 7ll this adds up to ongoing opportunities for CF9 traders to make money from commodities, but as you can see from the diverse news stories above, it is essential to stay in touch with the world markets in order to be on the right side of the trade. Fortunately, if you do work on keeping up with the news, you should be able to make your trades in time to benefit from the fluctuations. *tems such as a poor harvest can be seen coming for some time before the market is hit.

,(S( 2!eat Trade

7lthough the #nited $tates produces only !3 percent of world wheat +!""CK"A/233DK3= average., it is consistently the world)s biggest wheat e'porter. $ince the early !"@3s, #.$. wheat e'ports have fluctuated sharply. The trend was upward until !"=!K=2 +the international trade year for wheat is 8uly/8une., when e'ports reached a high of over A= million metric tons, but then reversed, with e'ports falling to less than 2C million metric tons in 2332K3C. The #.$. share of world wheat e'ports has fluctuated from a high of >3 percent in !"DCKDA to C3/A3 percent in !"=2K=C/">K"@, and between 23/C3 percent thereafter. *ncreased planting fle'ibility in #.$. farm legislation and low returns relative to competing crops has led to a decline in #.$. wheat area, limiting e'port potential. 6ver the last decade, #.$. wheat e'ports have e'ceeded C3 million metric tons only twice. They peaked in 233DK3=, when they reached CA million metric tons, comprising C3 percent of world wheat e'ports. 7lthough in 233DK3= marketing year, total world wheat trade grew by A million metric tons, #.$. wheat e'ports increased by almost !3 million metric tons over the previous year. This was the biggest year/on/year increase for the #nited $tates in 23 years.

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6ne reason #.$. wheat e'ports grew at the e'pense of other e'porting countries is that in 233DK3= the #nited $tates had large stocks, which subse%uently fell by A million metric tons. 7n important complementary reason was depreciation of the #.$. dollar vis/R/vis other ma-or world currencies. From 233@ to mid/233=, the #.$. dollar depreciated by about 2> percent. The dollar)s fall in value reduced the price for #.$. wheat compared to that produced by other countries. This boosted #.$. e'ports in 233DK3=, and lowered e'ports by other ma-or wheat producers.

d #.$. imports of wheat grain, mostly from Canada, are small +2/C million metric tons., but have grown from less than a !33,333 metric tons in the !"D3s to an average of 2.> million metric tons over the last !3 years. *mports of wheat products consist mainly of pasta and noodles from the 1uropean #nion +1#/2D., Canada, and 7sia. ;istorical information on #.$. imports and e'ports is available from #$97Gs Foreign 7gricultural $ervice +F7$. at #.$. Trade *nternet $ystem. 7 long/term perspective on pro-ected #.$. wheat e'ports is available in the 6utlook chapter. The pages provide further information on the supply and demand issues for wheat underlying
27

#$97Gs 7gricultural Baseline Jro-ections, which provides !3/year pro-ections for the #.$. and world agricultural sectors for selected commodities.

2orld 2!eat Trade

The #nited $tates is the worldGs leading wheat e'porter. *n most years, the #nited $tates, Canada, 7ustralia, the 1#/2D, the former $oviet #nion +including three ma-or wheat e'porters: <ussia, #kraine, and :a,akhstan., and 7rgentina account for about "3 percent of world wheat e'ports.

d The diversity of e'porting countries provides significant stability to world wheat trade and prices. 4ost of the worldGs wheat production is grown as winter wheat in the 0orthern ;emisphere, but Canada, :a,akhstan, <ussia, and the #nited $tates have large spring wheat production, which is planted much later. 4oreover, in the $outhern ;emisphere, 7ustralia and 7rgentina plant after the 0orthern ;emisphereGs spring wheat. ith wheat being planted and harvested at different times, countries can respond %uickly to changing market conditions.

28

*n the years before 233>K3@, world wheat trade peaked in !"=DK== at !!!.> million metric tons, when China and the $oviet #nion were importing very large amounts. 7fter that and up until 233>K3@, imports by 1astern 1urope, the former $oviet #nion, and China were much lower and world wheat trade did not match its !"=DK== level despite significant growth in imports by developing countries. *n 233C, the 1# established trade barriers to lower %uality wheat imports, also limiting world wheat trade. *n 233>K3@, world wheat trade reached !!A million metric tons. *n 233@K3D, total wheat trade increased modestly, but in 233DK3= wheat trade stagnated with high prices. <ising population in various parts of the developing world combined with strong economic growth have increased demand for both food and feed grains. *ncreasing amounts of food wheat are re%uired to meet demand for staple food products in countries with low incomes and e'panding populations in $ub/$aharan +0igeria, <epublic of $outh 7frica, $udan, and :enya. and 0orth 7frica +1gypt, 7lgeria, and 4orocco., $outh +7fghanistan, Bangladesh, and Jakistan. and $outh/1ast 7sia +*ndonesia, Jhilippines, and Lietnam., and (atin 7merica +Bra,il and 4e'ico.. 7t the same time, some ma-or importers from 0orth 7frica and the 4iddle 1ast increased wheat imports when adverse weather lowered their supplies. +For detail on the countries in these regions, see the <egions used for F7$Gs Jroduction, $upply, and 9istribution +J$N9. database..

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d hile a handful of nations dominate wheat e'ports, there are many wheat/importing countries. 7 few countries account for a large share of world wheat imports, including the 1#/2D, 8apan, $outh :orea, and Bra,il. ;owever, most wheat is imported by developing countries with limited production potential. Jopulation growth in 1gypt, 7lgeria, *ra%, Bra,il, 4e'ico, *ndonesia, 0igeria, and other developing countries will be the basis of future e'pansion of world wheat trade.

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+lo'al Scenario o# 2!eat.

The annual global wheat production has been in the range of @33/@C3 tones in the recent years. ;owever, in 233=/3" it is estimated to have risen sharply to @=" million tones. The combined production of all cereals in 233=/3" is estimated to be 2>2> million tones. 1#/2D, China, *ndia, #$7 and <ussia are the five ma-or producers of wheat accounting for close to D3? of the total global production, with 233=/3" production in these regions being !>!, !!2.>, D=.@, @= and @C.= million tons respectively. heat is the most important cereal traded in the world market. The global trade in wheat during 233=/3" was sharply up at around !A3 million tons in 233=/3" from an average of around !!3 / !!> million tons in the recent previous years. hile #$ +2> / C> million tons., 1#/2D +!>/2> million tons., Canada +!>/23 million tons., 7ustralia +=/!= million tons. and 7rgentina +@ / !2 million tons. are ma-or
31

e'porters, there are a large number of countries importing wheat with ma'imum demand emanating from developing nations. The ma-or importing regions are 4iddle/east 7sia, $outh/east 7sia and 0orth/west 7frica. 1gypt, Bra,il, *ndonesia, 7lgeria are the most important importing nations.

Market In#luencing *actors o# 2!eat.

heat is an annual, seasonal crop and prices usually tend to rise during the cultivation period, i.e. 9ecember to 4arch due to scarcity in the market and dip during the peak arrival period +7pril and 4ay.. eather has a profound influence on production, especially in ;aryana and Jun-ab as temperature plays a crucial role in determining the yield. The Govt. policies with regard to 4$J, buffer stocks, J9$ sales, 6pen 4arket $ales, imports K e'ports are very important influencing factor with regards to *ndian wheat prices. 9espite international trade being limited, the several variations in production or consumption at various ma-or or minor producing or consuming country, which influence global prices, are reflected in the domestic long/term price trend. ;owever, in the short/ term normally there is no significant relation with international prices. $everal international agencies like #$ 9ept. of 7griculture, *nternational Grains Council, Food and 7gricultural 6rganisation release regular, periodic reports on global supply/ demand situation, which is widely looked upon by the global players.

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2!eat *utures
Contract Si$e Delivera'le +rade >,333 bushels +S !C@ 4etric Tons. T2 $oft <ed !A!3A. 1ricing ,nit Tick 3minimum #luctuation4 Contract 4arch +;., 4ay +:., 8uly +0., $eptember +#. N Cents per bushel Si$e !KA of one cent per bushel +B!2.>3 per contract. inter at contract price, T! $oft <ed inter

at a C cent premium, other deliverable grades listed in <ule

Mont!s5Sym'ols 9ecember +H. Trading )ours C41 +1lectronic Jlatform. 6pen Globe' @:33 pm / D:!> am and ":C3 am / !:!> pm Central Time, $unday / Friday 6utcry ":C3 am / !:!> pm Central

+Trading Floor. Daily "imit

Time, 4onday / Friday

1rice B3.@3 per bushel e'pandable to B3."3 and then to B!.C> when the market closes at limit bid or limit offer. There shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

Settlement 1rocedure

Jhysical 9elivery

33

"ast Trade Date

The business day prior to the !>th calendar day of the contract month.

"ast Date

Delivery $econd business day following the last trading day of the delivery month. Globe' H PClearing

1roduct Ticker C41 Sym'ols +1lectronic Jlatform. 6pen

6utcry

+Trading Floor. E c!ange Rule These contracts are listed with, and sub-ect to, the rules and regulations of CB6T.

2!eat O%tions
Contract Si$e 6ne heat futures contract +of a specified month. of

>,333 bushels Tick 3minimum #luctuation4 Strike Intervals 1rice Trading shall be conducted for put and call options with striking prices in integral multiples of five +>. cents and ten +!3. cents per bushel. 4ore details on strike price
34

Si$e !K= of one cent per bushel +B@.2> per contract.

intervals are outlined in <ule !A73!.1. Contract 4arch +;., 4ay +:., 8uly +0., $eptember +#. N when the front month is not a standard option contract. The monthly option contract e'ercises into the nearby futures contact. For e'ample, an 7ugust option e'ercise into a $eptember futures position. Daily "imit 1rice B3.@3 per bushel e'pandable to B3."3 and then to B!.C> when the market closes at limit bid or limit offer. There shall be no price limits on the last trading day. "ast Trade Date For standard option contracts: The last Friday preceding the first notice day of the corresponding wheat futures contract month by at least two business days.

Mont!s5Sym'ols 9ecember +H.O a monthly +serial. option contract is listed

For serial option contracts: The last Friday which precedes by at least two business days the last business day of the month preceding the option month. E ercise The buyer of a futures option may e'ercise the option on any business day prior to e'piration by giving notice to the Clearing ;ouse by @:33 p.m. Chicago time. 6ption e'ercise results in an underlying futures market position. 6ptions in/the/money on the last day of trading are automatically e'ercised. E %iration #ne'ercised heat futures options shall e'pire at D:33

p.m. on the last day of trading. Trading )ours C41 Globe' @:33 pm / D:!> am and ":C3 am /
35

+1lectronic Jlatform. 6pen

!:!> pm Central Time, $unday / Friday 6utcry ":C3 am / !:!> pm Central

+Trading Floor. 1roduct Ticker C41 Sym'ols +1lectronic Jlatform. 6pen 6utcry

Time, 4onday / Friday

Globe' 6H PClearing

5 for callsK H for puts

+Trading Floor. E c!ange Rule These contracts are listed with, and sub-ect to, the rules and regulations of CB6T.

Results o# Increasing 1rice.

Global wheat prices have risen by CD? over the last year +6ctober 233"/$eptember 23!3.. 4oreover, they have been steadily rising since 7ugust 23!3 when widespread fires in <ussia prompted a self/imposed ban on wheat e'ports from that country. The move sent shockwaves through global commodity markets, with traders fearing scarcity of supply and resulting in an immediate escalation in commodity prices. 4ore recently, price rises have been furthered over due to poor prospects for wheat output this year in Canada, which is e'pected to be 2>? lower than in 233", according to agricultural crop specialists in the country. Current global wheat prices, however, are still around A3? lower than the peak reached in 4arch
36

233= when average F6B monthly prices e'ceeded #$BAC" per tonne. *nterestingly, movements in wheat prices are as much related to production as to e'isting stock levels. hile production of a specific commodity can be relatively weak at a specific point in time, stocks can always be used by suppliers to satisfy current demand. This means that a relatively poor crop does not automatically translate into a price increase. 7ccording to F76 estimates, wheat stocks in 23!! will stand at a similar level to the previous season / !"@ million tons +233"K23!3. versus !== million tons +23!3K23!!.. 1ven factoring in a drop in production of around !D million tons +C3? of total <ussian wheat crops., ad-usted stock levels will likely remain only slightly lower than 233=K233" levels of !D= million tons. *nterestingly, the impact of recent wheat price rises has to be assessed in the broader conte't of #$ dollar fluctuations. $ince 7ugust 23!3, the #$ dollar has lost around !3? of its value relative to the euro. 7 weak dollar means lower real costs for global commodities in 1# countries, which therefore suffer less in terms of the impact of dollar/based wheat price fluctuations.

Steady rise in corn %rices

Corn prices, which historically tend to be fairly stable, have not escaped the current food commodity inflation trend either. 4onthly average prices rose by 2C? over the 6ctober 233"/ $eptember 23!3 period, according to F76 official statistics. 7s with soybeans, corn prices are steadily increasing as a result of strong demand for animal feed in countries like China. This trend is, according to most industry sources, likely to continue on the back of stronger demand for milk and fresh meat in rapidly growing 7sian economies. 7s seen with wheat, current corn commodity prices remain far lower +by some 2=?. than their peak in 8une 233=. From the point of view of production, latest #$ 9epartment of 7griculture +#$97. estimates, released in 6ctober, pro-ect a 2? increase in global corn output for the 233"K23!3 season. 1nding stocks are pro-ected to remain stagnant, reaching around !A= million tons by the end of

37

this year. (inking demand of corn to pro-ected sales for a single industry could prove potentially misleading. 7lthough used primarily to feed livestock, corn is a versatile grain with a diversity of uses. *t is also processed into a multitude of food and industrial products, including starches, sweeteners, corn oil, beverage and industrial alcohol and fuel ethanol. Thousands of foods and other everyday items / from toothpaste and cosmetics to adhesives and shoe polish / contain corn derivatives.

/io#uels %ut %ressure on use o# land #or #ood %roduction

<esearch suggests, however, that there will be increased demand for corn for biofuel manufacturing over the short and medium term, driven by demand for renewable energy sources in developed markets. This trend will not only put pressure on global corn commodity prices but will also divert e'isting land stock from food to fuel production. 6ne key market e'pected to see an increase in demand for biofuel is the #$. The 1nergy *ndependence and $ecurity 7ct was introduced in 233D and aims to increase the production of clean renewable fuels. The act establishes new standards and grants for promoting efficiency in government and public institutions. 7ccording to the act, new and renovated federal buildings must reduce fossil fuel use by >>? +from 233C levels. by 23!3, and =3? by 2323. 7ll new federal buildings must be carbon neutral by 23C3. Corn, used for the production of ethanol/based fuels, is therefore a commodity likely to be fully affected by current pressures to increase renewable energy output not only in the #$ but also across most developed markets.

38

Stronger demand #or cattle #eed in C!ina

7nimal feed is another key industry set to continue to put upward pressure on corn prices. Total volume sales of meat in China are predicted to grow by 22? over the 233"/23!A period to reach over !33 million tons. *n other emerging economies like *ndia and <ussia, meat sales are pro-ected to grow by D@? and CA?, respectively, over the same period, according to 1uro monitor *nternationalGs pro-ections. Consumer demand for milk, another food staple, will continue to e'pand steadily in 7sian countries where its consumption is not yet widespread. *n China, for instance, total milk volume sales are predicted to grow by 2.C million litres over 23!3/23!>, according to 1uromonitor *nternationalGs pro-ections. *n *ndia, this increase will reach over four million litres over the same period.

*uture direction
<elatively good prospects for wheat and corn production and ending stocks should mean that a repeat of the price hikes seen in the first half of 233= remain fairly unlikely. That said, according to 1uromonitor *nternationalGs pro-ections, stronger demand from emerging regions andKor relatively poor crop yields in specific countries at particular times could push up wheat prices in real terms +e'cluding currency fluctuations. by between C/>? from 0ovember 23!3 through to the end of 23!!. Corn prices, currently under pressure from stronger demand for fresh meat and milk in emerging countries, could see this range increase to @/=? over the same period, according to 1uro monitor *nternationalGs pro-ections. Trading movements linked to worsening prospects for crop yields in any of the key producing markets could, however, push up predicted wheat and corn prices further than presently e'pected in the short term. *f the current weakening of the #$ dollar continues, the impact of such price rises on food manufacturers heavily reliant on the 0orth 7merican market could be even

39

stronger. The underlying driver behind overreactions of wheat and corn commodity is, however, not entirely un-ustified. There are concerns in the industry about the medium/term capacity of food producers to meet the needs created by future population growth. Between 233" and 23!A alone, the global population is pro-ected to grow by around A33 million, according to #nited 0ationsG estimates. 4ost of this growth will take place in meat, wheat and corn/hungry emerging economies in 7sia/ Jacific, 0orth 7frica and (atin 7merica. By 23>3, according to the same #0 pro-ections, the world population could reach the nine billion mark, an increase of around 2.> billion over 233". This is the reason why, despite the relative stability of year/ending stocks and crop output, wheat and corn commodities are predicted to remain under pressure over the medium to long term. Crucially, the underlying population growth trend makes them particularly vulnerable to the nervousness currently pervading global food commodity markets. (arge international companies whose activities rely heavily on wheat and corn should try and establish a sustainable sourcing strategy in the medium term. 4anufacturers relying on short/term trading will be highly e'posed to price hikes linked to Gnervous tradingGQ like the ones seen in wheat immediately after the recent wildfires in <ussia. *nterestingly, geographical diversification might also help international food manufacturers to offset price increases linked to the volatility of a particular currency. 6verall, research suggests a moderate but sustained increase in wheat and corn commodity prices over the 23!!/23!> period. Crucially, those food manufacturers offering high added value bakery and cereal lines will be in a far better position to pass on price increases to consumers. This is because premium consumers show higher elasticity to prices than those in the mass marketKmainstream. *n addition, private label bakery manufacturers will be in a relatively good position to internalise some of the commodity/induced price increases through economies of scale linked to mass
40

production. Those which occupy a space in between the premium and economy price bracket will, however, be the most heavily affected by prospects of food commodity inflation in the medium term Q and will accordingly have to ad-ust their sourcing strategies the most.

Conclusion.
orld commodity prices are rising day by day. ;igher farm commodity prices and energy costs are the leading factors behind higher prices. Farm commodity prices have surged because demand for corn for ethanol is competing with food and feed for acreageO global food grain and oilseed supplies are low due to poor harvests, the weak dollar has increased #.$. e'ports, rising incomes in large, rapidly emerging economies have changed eating habitsO and input costs have increased. ;igher energy costs increase transportation, processing, and retail costs. 7lthough the cost of commodities such as corn or wheat are a small part of the final retail price of most food products, they have risen enough to have an impact on retail prices. *n future this price is e'pected to be risen more. $o world food price is in a risky position.

/i'liogra%!y.
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