In this weekly review, we analyze the impact of growing wheat prices caused by climate change and the ways to use that as a profit opportunity by trading futures and options and buying stocks.
- How does a heatwave in India affect global wheat prices?
- How can we gain from the rising wheat prices?
- Which stocks may be a great bet for rising wheat prices?
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Impact of the Heat Wave in India on the Global Wheat Prices
Rising heat waves in India will boost global wheat prices. After China, India is the world’s second-largest wheat producer. In the last 122 years, this summer is the hottest for the country. During heatwaves, multiple economic sectors see reduced worker productivity. That is especially so for agriculture. Globally, 2% of total working hours are projected to be lost every year either because it is too hot to work or because workers have to work at a slower pace. Therefore, high temperatures limit wheat yield. Every one-degree-Celsius increase above a mean temperature of 23°C reduces wheat yield by an average of 10%.
There are other factors, such as drought and lack of water supply in the summer caused by low water reserves. As wheat production is facing troubles, there will be less wheat supplied to the market. As a result, wheat prices around the world will likely rise. With the intention to meet domestic demand, India has decided to ban wheat exports. In the meantime, wheat prices were already high because of the Russia-Ukraine conflict. Therefore, such a decision will likely further boost global wheat prices.
How Can You Gain from the Rising Wheat Prices?
Trading wheat in commodity exchanges may be profitable. One way of doing that is trading on wheat prices on the National Commodity & Derivatives Exchange Limited. Another one is buying call options or selling put options and buying futures contracts on wheat. All these scenarios will likely bring profit if the wheat price goes up. Trading commodity futures and options is similar to trading stocks or index futures and options. On the below wheat futures chart, the price is in an uptrend and may retest the high of 1425.00 in the future.
Best Stocks to Trade on the Rising Wheat Prices
ITC may outperform the market. FMCG Giant ITC produces wheat of Aashirvaad Atta brand, famous in India for its high quality. When the wheat prices rise due to low supply, ITC will likely benefit from the high demand for wheat. That may improve the profitability of the company. On the below chart, ITC’s stock price is in a strong uptrend. While it is trading above the 200-EMA, it may keep going up to reach the range of 310.00-320.00.
Risk warning: The content of the article does not constitute investment advice and you are solely responsible for your trading activity and/or trading results.
Yield refers to the earnings generated and realized on production over a particular period. It is expressed as a percentage based on the invested amount, current market value, or face value of the security.
National Commodity and Derivatives Exchange Limited is a leading agricultural commodity exchange in India
With a gross sales value of ₹74,979 crores and net profit of ₹13,032 crores, ITC is one of India's largest private sector FMCG companies.