The production of wheat dates back to Biblical times in being a staple foodstuff for both the human and animal population. Wheat is derived from wild grasses, their occurrence around the world largely dictated by climatic and topographical factors. Within the last century wheat husbandry has become increasingly sophisticated with on-going improvements in yields and quality due to scientific research and development, to satisfy the ever-increasing demand across the globe.

On average, the UK produces about 14-16 million tonnes of wheat on an annual basis. Use of wheat for animal feed (mainly pigs and poultry), at about 6 million tonnes per year, and exports, at about 4 million tonnes per year, remain the dominant outlet.

The wheat industry comprises a number of different sectors including farmers, merchants, cooperatives, processors (animal feed manufacturers, starch manufacturers, millers), and exporters, whose trading relationships embrace a history of both spot and forward trading.

The wheat industry is still supported within the EU by means of the Common Agricultural Policy (CAP), but less so than a decade ago. The General Agreement on Tariffs and Trade (GATT) in 1995 combined with the EU CAP reforms introduced in 2000, have progressively reduced EU price support levels for wheat, as well as export subsidies and import levies. Further reductions in direct support are scheduled from 2004.

These developments coupled with price uncertainty due to currency fluctuations have resulted in greater volatility in the UK wheat market.

Grain Futures trading in the UK dates back to 1929 while the present wheat futures contract was developed in the mid-60s. Over time the contract has attracted a loyal and widespread customer base throughout the UK and spreading into mainland Europe. The Wheat Options contract was launched in August 1988.

The contract specifications are regularly monitored to ensure that they reflect physical requirements and prices usually show a familiar and fairly consistent pattern during the season. The wheat futures prices are representative of levels at which wheat is being traded in the physical or cash market and, with some 80% of the UK wheat crop being hedged on the futures contract, serves as "a benchmark" for the physical market.

Wheat futures & options have been traded on LIFFE CONNECT® since 27 November 2000.

The Wheat futures contract is traded by all sectors involved in the Uk wheat trade, from growers through to processors. Increasing volatility has also attracted business from continental EU grain traders and occasionally private investors/speculators.

For further information please contact wheat@liffe.com