Russian wheat shortfall possible boon to US exporters of corn
HISTORIC heat, dryness and frost have walloped Russia’s winter wheat crop over the last several weeks, slashing harvest estimates for the top exporter and spurring a healthy rally in global wheat prices.

Corn prices are well off yearly lows but have not surged to nearly the extent of wheat, creating a wheat-corn premium not seen in almost two years.

That could stimulate global corn demand, potentially to the benefit of US exporters, who are seen regaining the title of top corn exporter from Brazil in both 2023-2024 and 2024-2025.

Most-active Chicago wheat futures have climbed almost 24% in the last five weeks, the largest five-week climb since Russia invaded Ukraine in early 2022.

Futures on Tuesday broke through US$7 per bushel for the first time since July, though they settled just below at US$6.97-1/2.

Due to challenging weather, Russian consultancy IKAR on Tuesday reduced its estimate for Russia’s 2024-2025 wheat harvest to 83.5 million tonnes from 86 million previously, down from about 92.8 million in 2023-2024 and over 100 million the year before.

Tuesday’s Chicago Board of Trade (CBOT) wheat rally pushed its premium over CBOT corn to around US$2.40 per bushel, levels not sustained since mid-2022. The decade-average wheat-corn differential is about US$1.30.

Most-active CBOT corn futures are up more than 6% over the same five-week period, but the optimism has fizzled in the last several sessions as US farmers have maintained a reasonable corn-planting pace despite persistent rainy weather.

The US Department of Agriculture (USDA) earlier this month pegged stocks-to-use among major global wheat exporters at 17-year lows in 2024-2025, though the agency’s Russian wheat forecast could be too high based on recent developments.

Global corn stocks-to-use, with or without China included, is seen relatively consistent in 2024-2025 versus 2023-2024.

However, a good start to the US corn-growing season could help keep the wheat-corn price spread wider and displace some global wheat demand toward corn, which has happened in other years where wheat is relatively expensive.

2014 connection?

Industry analysts have recently made comparisons between 2014 and 2024 in terms of the US corn market and corn futures, and the relative position of wheat versus corn prices is another similarity to add.

In 2014, the CBOT wheat-corn spread was stronger than normal, reaching about US$2.25 per bushel in both March and May. Robust US corn demand at that time led USDA to raise 2013-2014 export estimates by an unprecedented 31% between January and May 2014.

Recent US corn export demand has yet to impress but USDA announced a corn sale to major livestock producer Spain on Tuesday, the first of 2023-2024.

US corn demand faces much more competition from South America now versus then, as both Brazil’s and Argentina’s current crops are about 50% larger than a decade ago.

Brazil’s recent capturing of Chinese corn demand has also introduced a new dynamic, especially since China has the habit of snatching up global grains regardless of price.

The degree to which a heavy wheat-corn premium helps global corn demand may be limited.

That premium exploded above US$4 in 2022 following the Russian invasion but corn was still extremely expensive, and US corn exports, while strong, did not outperform expectations in 2021-2022.

Most-active CBOT corn topped US$8 per bushel in May 2022, though the contract settled at US$4.58 on Tuesday. — Reuters

Karen Braun is a market analyst for Reuters. The views expressed here are the writer’s own.
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Historic heat, dryness and frost have walloped Russia’s winter wheat crop over the last several weeks, slashing harvest estimates for the top exporter and spurring a healthy rally in global wheat prices.