By Karen Braun

FORT COLLINS, Colo.

A new global high for the corn harvest has also been set. This is unlike wheat and is likely to create stocks. But, there is a relative lack of liquidity in the corn market, so it is unclear if the relief that is promised in 2022.

Chicago wheat futures hit new highs for 2009 and moved more than $2.50 a bushel higher than Chicago corn options. It is now the largest wheat-corn premium paid in eight years.

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 wheat-corn futures ratio, however, is higher than recent averages and fits with what can be expected given the global stockpiles and when considering their consumption and production 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. It is down from 14.8% the previous year, and just slightly above 17% over five years.

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, the corn stocks-to use ratio has been lowered from recent levels but is still slightly higher than it was a year ago. Although 8.7% is the lowest ratio, excluding China, the 22% that includes China are closer to the longer-term median.

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 versus 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. After two years of declining annual output, despite an increasing consumption rate, this would mark the fifth year that the crop has exceeded demand.

However, the production of wheat is expected to remain flat for the entire year. This is also the second consecutive season in which demand growth will outpace crop production. 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 TO 2023

North America may lead the effort to provide relief for the declining wheat supply. Canadian and U.S. farmers will likely increase their plantings in 2022-23. This could have a significant impact on the outlook for global wheat production into 2023, assuming that there is no second devastating drought.

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. High fertilizer costs have led to speculation that U.S. corn plantings could fall in high-producing and exporting countries, possibly preserving relative tightness of global stocks.

The author is a market analyst with Reuters.