2

Say wheat is trading at $250 per ton.

  1. Does this mean if I own a share I have direct ownership of this ton of wheat?
  2. Where is the wheat physically stored?
  3. Can I trade the stock to own the wheat and physically acquire it?
  4. Is the stock price of commodities the price said commodities are traded in an industry? For example: Soy, corn, wheat, sugar, etc? If a farmer has a "ton" of wheat and he goes to sell at the local grainery will the sell at the stock price?
  5. If wheat stock skyrockets like say gold would this be the demanded price at granaries around the world and henceforth skyrocket the price of wheat based products (bread, flour, etc.)?
  • 1
    If a farmer has a "ton" of wheat. Why the scare quotes around the word "ton"? – RonJohn Aug 29 '18 at 13:24
3

Well, there's no such thing as commodity "stock". The closest analog is futures (there are other derivatives as well) which I'll base my answer off of.

A futures contract is a contract to buy something at a given price and time in the future. The contract will specify the date, price, and amount, and is regulated by a commodities exchange.

The "price" for a commodity that you see quoted is most likely the market price of the next expiring futures contract.

So now let's alter your question to

Say wheat futures are trading at $250 per ton.

Does this mean if I own a futures contract I have direct ownership of this ton of wheat?

If the future is physically settles, then when the contract settles you will buy a ton of wheat for $250.

Where is the wheat physically stored?

The delivery location will be specified by the contract. If the contract is bought from the Chicago Mercantile Exchange (CME), there are half a dozen location that can be chosen to deliver the wheat. From there you are responsible for transporting it and storing in somewhere.

Can I trade the futures contract to own the wheat and physically acquire it?

Sure. You can sell the contract at any time, just like stock.

Is the stock price of commodities the price said commodities are traded in an industry? For example: Soy, corn, wheat, sugar, etc? If a farmer has a "ton" of wheat and he goes to sell at the local grainery will the sell at the stock price?

No. Prices at local graineries have to incorporate local supply/demand, transportation costs, etc. and do not necessarily match the futures prices.

If wheat stock skyrockets like say gold would this be the demanded price at granaries around the world and henceforth skyrocket the price of wheat based products (bread, flour, etc.)?

The cause/effect is the other way around. Local prices can spike based on supply and demand and would then cause futures prices to spike, since people would rush to futures markets to lock in prices, and speculators would buy futures expecting the price to be higher when the futures settle.

2

Say wheat is trading at $250 per ton.

Does this mean if I own a share I have direct ownership of this ton of wheat?

You buy shares (portions) of a company (more specifically, an "organization", since you can also buy shares in a mutual or exchange traded fund).

On the other hand, you actually buy the ton of wheat.

Where is the wheat physically stored?

A silo, and you have to pay to store it there.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.