Hard red winter (HRW) wheat is one of the classes of wheat grown in the United States. It is the largest of the U.S. wheat crops, and it’s the type mostly grown by Kansas farmers. As a matter of fact, about 95 percent of the wheat grown in Kansas is the hard red winter.
Hard red winter wheat futures market contract is used as a benchmark for the international wheat market. The contract is offered by the Kansas City Board of Trade (KCBT), which is now owned by the Chicago Mercantile Exchange (CME) Group, and it can be traded from any part of the world — both during and after regular market hours — via the CME Globex electronic trading platform.
With high protein and strong gluten, HRW wheat is primarily used for making yeast bread and rolls but can also be used in making other flour-based products, as well as a substitute for livestock feed. Being an important commodity, hard red winter wheat futures is heavily traded on commodity exchanges.
| HRW Futures Contract Specifications | |
|---|---|
|
Symbol |
KW |
|
Exchange |
CME (KCBT) |
|
Tick Size |
$12.5 |
|
Point Value |
$50 |
|
Contract Size |
5,000 bushels |
|
Contract Months |
March, May, July, September, and December |
|
Trading Hours |
7:00p.m. – 7:45a.m. and 8:30a.m. – 1:20p.m. Settles at 1:15p.m. Sunday-Friday (CST) |
|
Settlement |
Deliverable |
|
Last Trading Day |
Trading ends on the business day before the 15th day of the contract month. |
Uses of Hard Red Winter Wheat
Hard red winter wheat can be used in a lot of ways, and these are some of them:
Food: Hard red winter wheat is mostly used in the baking yeast bread and rolls because of the gluten content. However, it can be used to make flat bread, cereal, tortillas, Asia-style noodles, and general-purpose flour.
Livestock feed: HRW wheat can be used as a substitute in making livestock feed.
Pharmaceuticals: The gluten in hard red winter wheat can be used by the pharmaceutical industry to make capsules.
Paper production: Gluten is also used by the paper industry to coat paper products.
The Largest Producers of Hard Red Winter Wheat
Different classes of wheat are cultivated in various parts of the world. China, India, Russia, the United States, France, and Canada are among the top producers of wheat in the world.
In the US, hard red winter wheat accounts for about 40 percent of its wheat production and about 55 percent of the wheat it exports to over 70 countries. HRW wheat is grown in the southern U.S. states of Kansas, Nebraska, Oklahoma, Colorado, and Texas, but Kansas is, by far, the largest producer of this type of wheat.
Why Trade Hard Red Winter Wheat Futures Contracts
There are many reasons to trade the HRW wheat futures contract. While some people trade the contract to profit from short-term price fluctuations, others may be in it to hedge their price risk. Investors may be in the market to diversify their portfolio or hedge against inflation.
Hedging against price fluctuations: The producers of hard red winter wheat sell the futures contracts to secure a good price for their products, while bread bakers and other users of the commodity can buy the contracts to ensure a regular supply of the commodity.
Speculation: HRW wheat futures contracts are also traded by speculators hoping to make a profit on short-term price movements. In fact, speculative traders are in the majority, and they play the vital role of providing liquidity in the market.
Portfolio diversification: Fund managers and investors come to the commodity market to spread their portfolio risk across more asset classes, and HRW wheat futures contracts have the necessary liquidity those investors are looking for.
Inflation hedge: Some people see commodities as a viable means of protecting their wealth against inflation because commodity prices go up when there is rising inflation.
Hard Red Winter What Futures Strategies
While it might not very easy to find trading strategies for the HRW futures contract, it indeed is possible. We have a couple of trading strategies for this market, and often times they will help quite nicely in a portfolio of trading strategies, being quite uncorrelated to other markets!
If you’re interested in getting inspiration for building your own trading strategies, we recommend that you have a closer look at our unique edge membership!
HRW Futures Seasonality
Here is a seasonal chart of the hard red winter wheat futures market:
How to Trade Hard Red Winter Wheat Futures
Hard red winter wheat futures contract is used as a benchmark for the international wheat market. The contract is offered by the Kansas City Board of Trade (KCBT), which is now owned by the Chicago Mercantile Exchange (CME) Group, and it can be traded from any part of the world — both during and after regular market hours — via the CME Globex electronic trading platform.
One KC HRW wheat futures contract (KW) is equivalent to 5,000 bushels of hard red winter wheat, and the price quotation is in cents and eighths of a cent per bushel. The minimum price fluctuation is 1/4 cent per bushel or $12.5 per contract.
HRW wheat contracts are listed with expirations in the months of March, May, July, September, and December.
Trading ends on the business day before the 15th day of the contract month.
At expiration, the contract is settled by physical delivery. Traders, who don’t want to take or make delivery of the commodity, can avoid that by rolling over to contracts in the next expiration months.
It doesn’t take much to start trading HRW wheat futures. All you need to do is to create an account with the exchange through your futures broker and deposit the required margin. Since it is a leveraged instrument, you don’t need to have the entire dollar worth of the contract before you can trade it. But you have to be cautious about leveraged instruments — while they can make you more money, they can also make you lose more.
Factors That Affect Hard Red Winter Wheat Futures
There are several factors that can influence the prices of HRW wheat futures contracts, which every HRW wheat trader needs to be aware of. These are some of them:
Demand and supply imbalances: An imbalance in the supply and demand of HRW wheat can have significant effects on the prices.
Weather Events: Weather situations in the regions where HRW wheat is produced can affect its production and influence the prices. When there’s an adverse weather condition, like drought or too much rain, HRW wheat prices may increase.
The value of the U.S. dollar: The HRW wheat futures contracts are quoted in U.S. dollars, so the value of the USD can affect its prices. When the USD is weak, HRW wheat prices increase and when the USD is strong, HRW wheat prices fall.
Important data reports: Certain data reports have huge effects on HRW wheat prices. Examples of such reports are:
- the USDA Monthly Supply & Demand Report
- Commitment of Traders
- the USDA Prospective Planting Report
- Spring Wheat Crop Condition
- the Weekly Export Sales
Conclusion
The HRW wheat is the largest wheat crop in the US. Although it is primarily used for making bread, it can also be used in making other baked products. Hard red winter wheat futures contract is offered on the Kansas City Board of Trade (KCBT) and can be traded via the CME Globex electronic trading platform.
Here is our archive with articles about other tradeable futures markets.
FAQ
What are the Uses of Hard Red Winter Wheat?
Hard Red Winter Wheat is versatile and used in various ways, including baking yeast bread, rolls, flatbread, cereal, tortillas, Asia-style noodles, and general-purpose flour. It’s also utilized in livestock feed, pharmaceuticals for making capsules, and in the paper industry to coat paper products.
Why Trade Hard Red Winter Wheat Futures Contracts?
Trading HRW wheat futures serves various purposes, including hedging against price fluctuations for producers and consumers, speculation for short-term profit, portfolio diversification for investors, and as a hedge against inflation.
How Can I Trade Hard Red Winter Wheat Futures?
The HRW wheat futures contract (KW) is a benchmark for the international wheat market and is offered by the Chicago Mercantile Exchange (CME) Group. It can be traded globally via the CME Globex electronic trading platform. The contract size is 5,000 bushels, and traders can start by creating an account through a futures broker.
What Factors Affect Hard Red Winter Wheat Futures Prices?
Several factors influence HRW wheat futures prices, including demand and supply imbalances, weather events in production regions, the value of the U.S. dollar (as contracts are quoted in USD), and important data reports such as the USDA Monthly Supply & Demand Report and Commitment of Traders.