Strong global maize prices narrow the discount to wheat

South American weather concerns have been supporting Chicago maize prices over the past few weeks. On 27 December, the May-22 futures reached $242.81/t, the highest price since June 2021 on this contract. From the 1 December to yesterday (11 January), the Chicago maize (May-22) contract gained $11.61/t (+5%) to close yesterday at $237.20/t.

Whereas global wheat futures have drifted slightly lower in recent weeks, capped by strong Southern Hemisphere harvests and current supply and demand news priced in. Over the same period of 1 December 2021 to 11 January 2022, the Chicago wheat (May-22) contract fell by $8.45/t (-3%) to close yesterday at $284.09/t.

As a result, we have seen the spread between Chicago wheat (May-22) and Chicago maize (May-22) futures narrow. On 6 January, the discount of maize to wheat narrowed to $37.47/t. This is the smallest spread since July 2021. Though still a long way from the smallest discount seen in July 2021, at $14.97/t. Since last week the spread has slightly increased again.

Figure showing Chicago maize and wheat futures spread narrowing

Will the spread continue to narrow?

Price direction will be dependent on the latest USDA World Agricultural Supply and Demand estimate (WASDE), which is released this evening (17:00, GMT).

Thinking about global maize and wheat specifically, this spread could narrow further based on two factors.

The first, with wheat prices capped by no ‘new’ news and large Southern Hemisphere harvests, we could see wheat futures continue to plateau. Though, tight supply and demand for the remainder of this season should keep prices relatively elevated, until more information is known on new crop prospects. This is all dependant on there not being any surprises in this evenings WASDE.

The second, is maize prices strengthening further. Yesterday, Conab (Brazilian food supply and statistics public company) reduced their Brazilian maize production forecast for 2021/22 as mentioned above in market commentary. This follows private forecasters also lowering their South American production forecasts. In today’s WASDE, we could see the USDA follow suit and lower their forecasts. However, any cut is thought to be small. As more information emerges on South American yields, there may then be bolder trims to forecasts as the season progresses.

Interesting points for wheat and maize markets to watch for in the WASDE include:

  • US ending stocks for wheat and maize.
  • US export forecasts for wheat and maize.
  • US maize for ethanol usage.
  • South American (Brazilian and Argentinian) forecasted maize production.
  • Wheat export forecasts for Russia and the EU.

Why is this important to UK feed wheat?

Strong maize prices provide a strong base for the global grains, which in turn lends support to UK feed wheat futures.

The discount of maize to wheat is seen to be narrowing from strengthening global maize prices and slightly lower global wheat prices. UK domestic wheat is currently competitive to imported maize, especially given the high freight costs too.

 

AHDB

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