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Unusual wheat, corn price relation

01/19/2012 @ 8:16am

DES MOINES, Iowa (Agriculture.com)--It appears that gone are the days when a market watcher can ballpark the price of wheat based upon the corn market. In other words, it used to be that if corn was $3.00 per bushel, wheat would trade around $6.00. Or, if corn was $4.00 per bushel, wheat would make its way to the $8.00 level. 

Price Gap Narrows

Though not that dramatic, the two grains did trade with a sharp gap a year ago. On February 9, 2011, the CME Group March wheat futures closed near the $10.00 mark, while March corn settled at $6.22. 

That nearly $4.00 difference in the two commodities has now disappeared. In fact, numerous times since late 2011 corn has traded higher than wheat. 

On Wednesday, that was the case again, as the CME Group wheat futures settled at $5.92 1/4 while corn ended at $5.93 1/2 per bushel.

So, what is going on? 

As global wheat stocks rise, due to a large production year for many countries, wheat prices have plummeted. Meanwhile, tight stocks and increased food and industrial consumption of the starch-filled grain have corn prices rising. 

As a result, the two grains are in direct competition, namely on the world feed stage.

"As U.S. corn stocks become scarce and more corn gets bid into the fuel market, the rest of the world has had to move to feeding wheat," one CME Group floor trader, requesting anonymity, says. "So, at high prices, corn and wheat markets have converged because high prices have spurred large increases in production and export of feed wheat out of Former Soviet Union countries, as well as India and Australia."

Convergence To Continue

The convergence of wheat and corn futures prices is expected to continue, as long as low quality feed wheat supplies remain ample, market watchers say.

On January 12, following the USDA Crop Report that raised the U.S. 2011 corn production and stocks, Goldman Sachs Group Inc. lowered its three-month corn price forecast to $6.30 a bushel from $6.85. The firm also trimmed its three-month outlook for wheat to $6.20 a bushel from $6.70.

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