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Market Commentary for 11/19/21
Wheat Update
Historically, wheat has had an impact on corn prices. However, for the past several years it has been somewhat overshadowed by both corn and beans, as all wheat planted acres fell to historically low levels. Recently though, there has been a price shift and wheat suddenly became the market leader. Over the next few months corn may be following wheat’s price direction more closely.
Wheat closed out the week at $8.23, up $1/bushel or 14% higher than where it was the day after the October USDA report. During the same timeframe, corn increased 58 cents, or 11% higher, closing out the week near $5.70.
What Can Wheat Prices Do?
The world wheat stocks-to-use ratio is at a 50-year low. The last time the wheat supply was this tight were the winters of ‘11/’12 and ‘07/’08. In both marketing years wheat prices eventually traded above $9.40. Interestingly, when wheat traded above $9.40 in those two years, corn eventually went on to trade over $7.50 within the same marketing year. In ‘10/’11 wheat prices also surpassed $8.50, and corn soon followed to almost $8.
It’s important to note, while wheat prices traded to some of its highest levels in history, corn had several issues helping it rally during the same time frame. Notably, the ethanol boom was starting in ‘07/’08, which led to prices skyrocketing that year. However, by the following harvest prices were much lower because more acres had been planted. Wheat prices increased in ’10, ‘11 and ’12 due to drought, which also crippled corn production and sent prices higher too. Obviously past performance is not indicative of future prices, but the potential for much higher values in corn is certainly there.
Wheat vs Corn
Historically wheat prices have tended to lead the corn market higher AND lower over time as seen in the chart below:
There are likely several reasons for this general tandem price movement. One, wheat and corn are both grasses, making it easier for producers to substitute during planting rotations. Two, feed users can also switch between corn and wheat easily depending on price.
Will Wheat Prices Keep Going Up?
There are several variables impacting wheat prices right now:
- There have been numerous global production issues, most notably in Canada and the Dakotas
- The European Union is expected to cut exports of wheat and move away from wheat in feed rations
- Russia is expected to limit exports to keep domestic prices for food there stable
- China’s state wheat reserves are being auctioned off for food production only
- Australia’s wheat crop was expected to be large until recent rains during harvest occurred putting quality into question
- World inflation concerns may encourage funds to buy more commodities, including wheat
- High fertilizer prices could mean less nitrogen applied in the spring, which could hurt yields next summer
Bottomline:
There are a lot of bullish factors that could drive wheat prices higher. But wheat and corn do not trade in perfect tandem. They each have their own unique characteristics, so dramatic changes in one doesn’t necessarily mean the other will immediately rise or fall. However, due to their substitution flexibility among both producers and feed users, over time their values cannot be drastically different either. So, for now where wheat prices go, corn might follow.
Want to read more by Jon Scheve? Check out recent articles:
Can Corn Trade Back To $7 Or Does It Drift Back To $5
What Is In Your Marketing Toolbox?
Can Corn Break Out Of The $5.10 To $5.40 Trading Range?
Should I Store Corn Or Beans This Year If I Am Limited On Space?
Did Beans Bounce Off a Seasonal Low?
Asking the Right Questions When Discussing Early Yield Results
Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
