Posted: Thursday, June 23, 2011 10:00 AM
Weather limits supply as strong domestic demand persists
With corn prices nudging past wheat prices, industry analysts disagree on what it means for farmers.
National cash prices for soft red winter and soft white winter wheat prices fell below national corn cash prices early this week. Wheat for July delivery rose 15 cents Tuesday to $6.7425 a bushel -- near the low for 2011. July corn gained 7 cents to settle at $7.075 a bushel.
"The price difference is due to strong domestic demand for the corn market and smaller production," Darin Newsom, senior analyst for Telvent DTN in Omaha, Neb., said.
Corn supplies are expected to tighten further, as weather and flooding continue to threaten this year's crop.
Corn doesn't usually hold a premium compared to wheat for so long or so large, he said.
"Kind of unprecedented territory here as far as how long it may last," Newsom said, speculating it could be early fall before wheat prices catch up with corn prices.
Dan Steiner, grain merchant for Pendleton Grain Growers in Pendleton, Ore., sees the price difference as a good thing.
"Corn is the rising tide that lifts all ships," he said. "You have a harbor full of ships and the tide comes in, all those ships go up. If corn is up, it's going to raise everything up on its own."
Eventually the market will correct, Steiner said, and corn prices will either drop or wheat prices will increase.
The most immediate question is how the U.S. corn crop turns out, said Mike Krueger, owner of MK Commodities in Wilsonville, Ore.
"There's considerable debate about how many acres finally got planted, how many got flooded out and what the yield's going to look like," Krueger said. "We're off to a late start. You wonder even about an early frost shutting down the growing season. We don't have a lot of room for (the corn crop) to shrink much without it creating a major fuss."
Wheat is beginning to enter the livestock feed supply, Krueger said.
If wheat bushels enter into feed rations for livestock, that will support the price of wheat by reducing excess stocks, Steiner said.
The June 30 USDA corn acreage report will be key, Steiner and Krueger said.
Steiner said the world market and competition have increased to the point that farmers must keep an eye on more factors that affect prices, particularly speculators and index funds.
"I wouldn't ignore it, I would take notice, but I wouldn't panic," Steiner said, noting speculators are waiting for the next big weather or news event.
Newsom said the market must also determine the current winter and spring wheat crop levels and quality. If farmers must make sales right away, they should go ahead, he said.
"But if they can hold off, this wheat market should rally at some point, unless the overall, large, macro-dynamics change in commodities in general," he said.