Record wheat, corn crops combat world supply squeeze differently

FORT COLLINS, (Colo.): Global wheat production is expected to reach a high-water mark this year, but the stocks situation for major exporters will be far from secure, potentially dropping to all-time lows.

The global corn harvest is also set for new highs, which unlike wheat is expected to build stocks, though relative tightness may also stick around in the corn market and it is uncertain whether the complete sigh of relief will arrive in 2022 or later. Chicago wheat futures this week marked fresh nine-year highs and pushed more than $2.50 per bushel above Chicago corn futures, the largest wheat-corn premium for the most-actively traded contracts in more than eight years.

Corn futures are below highs set earlier in the year but are trading at nine-year highs for the date, and these elevated grain prices are driving the large spread. The price ratio of wheat to corn at 1.43 is a bit more normal in a historical context and has been observed a handful of times in recent years.

However, the wheat-corn futures ratio is above recent averages, and it fits in with what should be expected given global stockpiles of the two grains and especially when comparing their production and consumption trends.

US Department of Agriculture projections for the 2021-22 marketing year suggest that wheat stocks-to-use among major exporters, including Russia and the United States, will fall to a collective 12.1%, the lowest in USDA records back six decades. That is down from 14.8% in the previous year and a five-year average just above 17%.

That is despite total global wheat stocks pegged at historically high levels, driven largely by China’s intentional hoard that will account for a record 51% of all wheat supply this year. China’s numbers have often been excluded from global grain analyses, though its recent surge in imports brings scrutiny to that process.

Globally, corn stocks-to-use is pegged below recent averages but slightly above the year-ago levels. The ratio of 8.7% when excluding China is among the lowest on record, though 22% with China is closer to the longer-term mean.