Grain market outlook: Price incentives for inclusion of wheat into feed formulations

21-Dec-2021 - Last updated on 22-Dec-2021 at 07:19 GMT

Global wheat markets have become marginally better supplied, mainly from a large Australian wheat harvest, a development that is pressuring not only domestic Australian markets, but also global ones, finds CRM Agri in its latest grain market analysis.

The premium of wheat prices over corn in the US has been reduced, falling from a peak of over around US$270 per bushel to about US$175 per bushel, so inclusion of wheat into animal feed formulations will once again be incentivized, according to those UK-based analysts.

However, the fundamentals of supply in the US and Canada are for stocks to be very tight by the end of the season, they stressed.

“With wheat markets still very tight, in our opinion, wheat prices will need to again increase the premium to corn and it is now difficult to justify further downward market moves, unless corn also comes under pressure.”

Global corn markets

Two major factors continue to provide upside potential for global corn markets, said the agri-commodity researchers, namely Chinese demand and potential yield loss in South America as a result of La Niña.

“Focusing on China, and there has continued to be a prolonged period of absent US-China sales of significant volume. However, the probability of there now being significant US-China sales has increased.”

Drought is potentially causing yield issues in South America, according to CRM Agri’s analysis.

The second corn in Brazil suffered greatly in 2021, with La Niña conditions leading to large yield loss and tightening global corn markets.

“Heading into the last stages of 2021 and into 2022, La Niña is making its mark again, however this time focused upon Argentina. With a lack rainfall already this season in Argentina, drought and extreme drought conditions are widespread.”

Argentina may be a far smaller producer of corn compared to the US and Brazil, but remains a significant exporter, particularly to European markets. With drought persisting, this is providing yet another level of underlying support for grains, said the UK grain market specialists.