Corn, wheat uncoupling in grain markets

Sep 14, 2012
by WLJ

There is something of a divorce happening in the grain markets, with corn and wheat prices becoming uncoupled and operating increasingly independent of one another.

“Corn is still the dominant factor in the market, and you’ve still got corn and wheat trading in their dollar range, respectively, but I don’t believe corn is still king,” said Kim Anderson, Oklahoma State University Cooperative Extension emeritus grain marketing specialist.

There are several factors causing the separation. First, wheat stocks have tightened; Russia and the Ukraine are talking about limiting or suspending their exports. Some analysts contend these countries will run out of exportable wheat by the end of October, and believe Russia and the Ukraine could likely cut exports sooner. In addition, Australia’s 2012 wheat production estimate has been lowered because of dry conditions in the western portions of that nation.

“The combination of these factors limits the supply of wheat in the world market and makes demand for U.S. wheat, which currently is about $20 a ton or 54 cents a bushel priced above the world market, a stronger player in terms of export demand,” Anderson said. “That makes wheat prices, to a certain degree, independent of corn.”

Second, there is a tremendous amount of uncertainty affecting the markets. With less than 40 percent of U.S. corn harvested, there is concern about just how much of the total planted acres will eventually be harvested, given recent and projected weather conditions.

“Nobody knows to what degree the aftermath of hurricanes and rains will reduce corn stocks,” Anderson said. “If corn stocks are reduced enough, that supports corn prices; if wheat stocks are tight enough and if corn prices go up, then wheat prices go up. If something happens to wheat, wheat prices will go up and corn is likely to follow wheat.”

In short, changes in the supply of or demand for corn or wheat can result in higher prices, even with current market factors helping to uncouple the crops.

Oklahoma is the nation’s third-largest producer of winter wheat, accounting for 8.14 percent of the total U.S. crop, according to National Agricultural Statistics Service data. — WLJ