Image Source: With Oktoberfest just around the corner, S&P DJI has announced the launch of the and . S&P DJI recently acquired the rights to the Minneapolis Grain Exchange (MGEX), on which Minneapolis Wheat futures contracts are primarily traded.Minneapolis Wheat is one of the three most actively traded wheat futures contracts in the U.S.; the other two being Chicago Wheat and Kansas City Wheat, both of which are current constituents of the broad-based benchmark, the . The futures contracts are named after the primary exchange on which they are traded: the Minneapolis Grain Exchange (MGEX), Chicago Mercantile Exchange (CME) and the Kansas City Board of Trade (KCBT, now part of CME). The futures contracts have vastly different liquidity profiles, with Chicago Wheat being the most actively traded of the three.
The specific wheat classes underlying the contracts are differentiated by factors such as when and where they are planted, the protein content and uses. Minneapolis Wheat, or hard red spring wheat, is the second most produced wheat in the U.S., with 12.7 million metric tons (MMT) produced in 2023. It is planted in the Northern Great Plains region of the U.S. in the spring and harvested in the summer. Its high protein content of 14.2%, adjusted to a standard moisture basis of 12% (12% mb) in 2023, makes it ideal for making breads, rolls and pasta, which are staple components of many consumer diets. It is also frequently mixed into flour blends to enhance quality.Exhibit 2 shows the production levels for the different wheat classes, and Exhibit 3 compares the protein content.
Minneapolis Wheat had the highest protein content and the second-highest production levels in the U.S. However, its futures contracts represented only 5.5% of the total quantity traded. The S&P GSCI Minneapolis Wheat offers investors greater insight into this under-utilized commodity and its performance.In addition to the S&P GSCI Minneapolis Wheat, S&P DJI has also launched the S&P GSCI Composite Wheat. The S&P GSCI Composite Wheat includes all three wheat contracts and uses the same production-weighted methodology of the S&P GSCI by weighting each component based on the five-year world production average for wheat and the total quantity traded for each contract (see Exhibit 1). The index rebalances annually in January during the designated roll period.On an annualized basis, the S&P GSCI Minneapolis Wheat’s back-tested performance has shown lower volatility than the (which measures Chicago Wheat) and the , resulting in lower annualized back-tested volatility for the S&P GSCI Composite Wheat, compared to the , which only includes Chicago Wheat and Kansas City Wheat contracts (see Exhibit 4).
Including the S&P GSCI Minneapolis Wheat in the S&P GSCI Composite Wheat increases exposure to a domestic wheat class that has differentiated returns, volatility and characteristics.Recent wheat performance, based on back-tested data of the S&P GSCI Composite Wheat, was down 24% year-over-year as of Aug. 22, 2024. However, wheat pricing has faced several anomalous headwinds, including the beginning of the Russia-Ukraine conflict in February 2022, which shifted the purchasing behavior of key U.S. wheat importers, and historically high U.S. wheat production. The USDA forecasts the U.S. will produce 1,982 million bushels in the 2024-2025 marketing year, an eight-year high.U.S. wheat prices can also be seen as a normalization of the high wheat prices in May 2022 (see Exhibit 5) due to the COVID-19 pandemic, the Russia-Ukraine conflict and adverse weather conditions. Meanwhile, wheat remains a staple grain in many diets and demand could stabilize or increase as populations grow, developing countries continue to diversify diets and weather conditions turn unfavorable. Wheat prices are also highly dependent on the performance of substitutable grains, such as soybeans and corn.
Minneapolis Wheat is not a current constituent of the S&P GSCI; however, the S&P GSCI Minneapolis Wheat and S&P GSCI Composite Wheat are both part of the S&P GSCI series of indices. The S&P GSCI is the first major investable commodity index and measures the most liquid commodity futures, which provides diversification with low correlation to other asset classes.More By This Author:Back To Basics: Remembering The “Income” In Fixed Income Three-Year Live Performance Review Of The S&P QVM Top 90% IndicesFixed Maturity In Focus: Constructing A Ladder For Stability And Yield
A Grain Of Wisdom: S&P DJI Launches S&P GSCI Minneapolis Wheat And S&P GSCI Composite Wheat
