The question today, and probably for a while now is, is US wheat cheap? The answer is probably yes, but to have a closer look and confirm this we may need to know the feed grain ration calculations for both US feed grain consumers and export feed grain consumers. In the meantime we can look at spreads.
The attached chart shows the spread between wheat and corn, corn generally the primary feed grain until we see the spread close to wheat. The chart best displays the spread between nearby corn and wheat futures at Chicago over the last 12 months. We see the spread on April 1st 2024 at a seasonal low of around 106c/bu (AUD$60.80/t) before climbing sharply as wheat values spiked on production issues. By October the down trend in the spread was established and we’ve seen the spread eroded ever since, regardless of international wheat movement. We also notice that corn values have increased as wheat has declined. This leaves a spread today of just 45.75c/bu (AUD$26.24/t).
Over the last ten years the wheat / corn spread has averaged about 125c/bu, with some big variations, mainly thanks to droughts and wars. On average one wouldn’t expect to see a spread below 50c/bu more than 5.86% of the time. Compared to above 125c/bu for 47.69% of the time.
I guess this question can also be transposed to ask, is corn expensive, one would probably argue at just 467c/bu, US$183.84/t (AUD$287/t), that, no it is not expensive. Compared to say sorghum at US$220 FOB US, or feed barley at US$228 FOB US, corn at US$217 FOB US is not expensive.
Historical analysis will also tell you that the spread will not remain under 50c/bu for long periods of time, apart from abnormal production years. The only year that stands out as a very abnormal year over the last 10 years was 2023 when the spread remained below 50c/bu, on and off, from April to late June. A year when US wheat production was lower, increasing US domestic demand for corn.
So is US wheat production lower this year, will corn demand be high in the US. The odds appear to be stacked against both questions considering the tariff debacle and the current weather pattern.