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Record wheat, corn crops combat world supply squeeze differently -Breaking

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© Reuters. On October 20, 2021, fields of wheat and barley were seen near Caledon, South Africa. REUTERS/Mike Hutchings

By Karen Braun

FORT COLLINS (Colo.) – While global wheat production will reach a record high this year, stocks for large exporters could fall to their lowest levels ever.

A new global high for the global corn harvest has also been set. While this is different from wheat’s ability to create stocks, it will also build them. But, there may be some relative tightness on the corn market, and it is unclear if the relief that is promised in 2022.

Chicago wheat futures reached new nine-year highs last week and were more than $2.50/bushel higher than Chicago corn futures. This is the highest wheat-corn premium in over eight years for most actively traded contracts.

Although corn futures prices have dropped to levels earlier this year, they still trade at their highest level in nine years. These high grain prices are driving this wide spread. It is somewhat normal for wheat prices to be at 1.43 in historical context. However, this ratio has only been noticed a few times over the past years.

The ratio of wheat and corn futures is however higher than the recent averages. This fits well with the expected global stocks and particular when we compare their production and consumption trends.

CORN VS. WHEAT

U.S. Department of Agriculture forecasts that the total wheat stock-to-use of major exporters including Russia, USA, and China will drop to 12.1% in the 2021-22 market year. This is the lowest level recorded by USDA since six decades ago. This is a decrease of 14.8% from the year before and an average five-year high just over 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.

The global corn stock-to-use ratio is slightly higher than the previous averages, but below that of last year. While 8.7% excludes China ranks among the lowest ever recorded, 22% includes China makes it closer to the long-term average.

Most of the world’s exportable wheat for 2021-22 has already been harvested whereas a larger portion of the corn supply is still in the early stages in South America. However, current forecasts suggest that wheat and corn will follow different paths in terms of production and consumption.

Global corn production for 2021-22 is expected to rise nearly 8% over the previous year, which is slightly higher if you exclude China. This is after two years with a fractional decrease in annual production despite an increase in demand. It would also be the fifth consecutive year of crop surplus.

However, global wheat production is projected to be almost flat this year. It is the second consecutive growing season when demand should exceed the crop’s growth. The largest gap in almost a decade is that global consumption rose 6% between the last two years and there has been a slight increase of output by 2%.

LOOKING FOR 2023?

North America may lead the effort to provide relief for the declining wheat supply. Canadian and U.S. farmers expect to increase plantings for 2022/23. That will make a big difference for the global outlook on wheat into 2023, provided that another disastrous drought is not caused.

These supplies will be available in the middle of 2022 just before 2022-23’s first corn is made, and concurrently with the 2021-22 South American corn offerings. Therefore, grain shortages could not occur for a long time, given the strong, or normal, output over the following year.

U.S. plantings are already in hot debate. A high price for fertilizer has led to speculation that the corn production could drop in top producers and exporters, possibly preserving relative tightness of global stockpiles.

These opinions are the views of an analyst at Reuters.

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