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Wheat prices pull corn and beans lower

Al Kluis 01/11/2012 @ 10:39am

Since May 2011, the projected global ending stocks of wheat have increased by over 800 million bushels. This has dropped global and U.S. wheat prices by over $2 per bushel and pulled corn and bean prices lower as well. By next year I look for global supplies to start to decline, which will be supportive for price.

The basis is firm in my area; the elevators did not get full. So could we run out of corn by this summer?” That was a question from a bullish young farmer at one of my late-fall seminars. I told him that in a global market, he needed to look at the total feed grain supply.

With wheat occasionally trading below corn in the U.S. and throughout the world, there are more than adequate feed grain supplies. Last fall, U.S. corn futures were trading at a premium to wheat futures. Historically, that indicates wheat is too cheap or corn is too high.

So what happened from late summer into early winter? Wheat prices kept moving lower and corn was pulled lower, as well.

The global fundamentals for wheat started to turn negative in April 2011 when it became obvious that the larger wheat crops in Russia and the Ukraine would more than offset smaller wheat crops in the U.S. and Canada.

Grain companies in Russia and the Ukraine were anxious to rebuild their reputations after embargoing wheat exports in 2010. That produced the following three results.

1. The first result was a wheat price war. No matter how low wheat prices dropped, the offers from exporters out of the Black Sea were 20¢ to 50¢ per bushel lower. This took $1 off the wheat market from mid-May until the end of June.

After a brief August rally, wheat prices continued to move lower, with global wheat prices dropping to a 50¢-per-bushel to 70¢-per-bushel discount to corn.

2. The second result was global feed grain buyers changing over to buying cheap feed wheat out of the Black Sea and reducing U.S. corn imports.

The USDA reduced projected corn exports in the October report, and it may reduce exports again in January.

3. The third result was the hard down move in the U.S. corn market, with corn futures dropping by $1.90 per bushel from the late August high to the early October low. After a 30-day 90¢ rally, corn prices continued to move lower as wheat futures fell to new contract lows.

When you add in the Euro debt problems and the MF Global bankruptcy, the pendulum has swung from really bullish to really bearish after a $2 drop in corn prices.

3 Signals

What can turn corn and soybean prices around? And what will signal the price rebound?

“Last fall, U.S. corn futures were trading at a premium to wheat futures. Historically, that indicates wheat is too cheap or corn is too high.”

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