The costliest corn in more than two years means livestock producers will feed animals more wheat, strengthening demand just as stockpiles shrink the most since 2007 and driving prices 4.5 percent higher in three months.
Wheat traded on the Chicago Board of Trade will jump to $8.60 a bushel as corn rises 4.3 percent to $8 a bushel, exceeding the record $7.9925 set in June 2008, according to Jonathan Bouchet from OTCex Group, a Paris-based brokerage. Wheat rose as much as 14 percent in the month after the Geneva- based analyst predicted a surge in January.
“The whole grain market is related through animal feed because producers tend to switch from corn to wheat,” said Bouchet. “Right now wheat is supported by the corn story.”
Corn rose 16 percent and wheat 13 percent since the U.S. Department of Agriculture said March 31 that corn stockpiles fell to a four-year low on March 1. Higher grains costs are adding pressure to food prices the United Nations says reached a record in February, contributing to protests across the Middle East and North Africa and toppling leaders in Tunisia and Egypt.
Corn for May delivery gained 0.9 percent to $7.6675 a bushel on the CBOT at yesterday’s close. Wheat for July delivery dropped 0.5 percent to $8.2275 a bushel. Feed will account for 18 percent of global wheat use in the marketing year through May 31 compared with 59 percent of corn consumption, according to the USDA.
Wheat for May delivery cost 23.5 cents more than the May corn contract on the CBOT on April 1, the smallest premium since May 2000. Wheat will cost less than corn in three months, Goldman Sachs Group Inc. (GS) said in a report April 1. That would be the first time that’s happened since June 1984, according to data compiled by Bloomberg. Wheat on average has traded $1.45 higher than corn over the last decade, the data show.
Livestock producers may use the lower-quality soft-winter wheat traded in Chicago or in some cases hard-winter wheat, used to make bread, according to Erin FitzPatrick, an analyst at Rabobank International in London. Wheat inventories on March 1 were 5.1 percent higher than a year earlier, the USDA estimated.
“New-crop soft-red winter wheat is competitive to corn,” FitzPatrick wrote in an e-mail. “Even hard-red winter is competitive in Texas. This will cause some feed demand to shift from corn to wheat.”
Wheat is expected to average $8 this quarter, according to the median in a Bloomberg survey of 22 analysts two weeks ago. Futures markets are anticipating $8.96 in December.
Farmers reaped 15.4 million metric tons less than demand this season, the biggest shortage in four years, and stockpiles will drop 7.8 percent, the U.S. Department of Agriculture says.
U.S. corn plantings will increase to about 92.178 million acres this year, the second-largest since 1944, the USDA estimates. That won’t be enough to replenish inventories to any “meaningful extent,” Rabobank said in a report on April 1.
Until the spread between the grains returns to the average over the last several years, livestock producers will use less corn and more wheat, said Connor Noonan, an analyst at Castlestone Management in London. Corn prices need to rise to curb demand for exports, he said.
“At some point the switch has to happen,” Noonan said. “The biggest news out of the past couple of weeks has to be no export-demand rationing of corn. The rationing will start in the feed use and eventually trickle through.”
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