Ongoing battle between bullish corn fundamentals and bearish wheat news. China holds the whistle…

18 Mar 2021

During 6 consecutive months, grain prices have increased in a straight line, reaching multiple year highs. Yet, since the beginning of March, markets have very clearly initiated a consolidation momentum. Traders are hesitating between very supportive old crop fundamentals and an increasing probability of higher supplies in 2021/22. At least on paper…

Winter is now behind us; spring just beginning and markets are in a wait and see position.

On one side, US and world corn fundamentals are facing what can be considered as very worrying stock levels. The situation is known: US stocks are historically low, Ukraine has had a major crop incident, China is buying massive volumes, Brazil and Argentina are facing ongoing adverse weather conditions. Consequently, the much needed S. American supplies may well be revised significantly down in the coming months. Corn fundamentals are buoyant and world prices are still trading at the season high.

On the other side, wheat S&D remained well balanced in 2020 and supply forecasts are currently on the upside. The possibility for a record crop in 2021 is still on the table. Winter has been universally friendly for the crop, and wheat conditions are improving all over the world. The Russian crop is now viewed to be 79Mt (up from 76Mt), Ukrainian wheat reported as 98% good to excellent, thus far European weather is close to ideal and US winter wheat area is currently receiving some much needed rain. Only good news for yields and new crop supplies!

We started the season with bullish wheat fundamentals, capped by massive corn supply forecasts. In just a few months, we are now facing an opposite situation, with a tight corn situation conflicting with a probable more balanced wheat S&D. These two crops are fundamentally correlated as one can easily replace the other, especially in the feed sector. The price battle is only just starting, and we can already draw one conclusion: the current wheat price weakness should remain limited and any further risks on the corn supply potential may well take all grain prices to even higher values.

We will therefore focus our attention to the S. American weather and US spring drilling conditions. Last but not least, ongoing Chinese corn purchases will keep markets alert. Their appetite seems endless. Following on from the pause due to the Chinese New Year festivity they bought, this week alone, another 2.4Mt of US corn! Massive!

Sébastien Mallet