Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Corn Is Surging Past Wheat in July 2026
Transcript
- Lucas: Corn is up five percent on the week. Wheat is up two percent. That gap is not random. Luna: I noticed that too. Usually they move together — same weather, same growing season. So what's pulling them apart? Lucas: It's a classic case of two different demand drivers. Corn has industrial tailwinds right now that wheat just doesn't have. Ethanol production in the US is running at a record pace for July — we're talking nearly 1.1 million barrels a day. Luna: And that's directly tied to natural gas being cheap, right? Because ethanol plants are huge gas consumers. Lucas: Exactly. Natural gas futures are sitting around two ninety-one this week. Down one percent in the past five days, but the bigger story is that they've been range-bound below three dollars for weeks. That makes the economics of running an ethanol plant very attractive. Lower input costs mean higher margins, so plants run at full tilt. Luna: So cheap gas is subsidizing corn demand. Meanwhile, wheat doesn't have that industrial floor. Lucas: It doesn't. Wheat's demand is almost entirely food and feed. And on the export side, we're seeing headwinds. China reported its slowest quarterly growth since 2022 this morning. That's a big deal for wheat because China has been stockpiling grain — if their economy is slowing, they may pull back on purchases. Luna: And the strong dollar doesn't help. US wheat becomes more expensive for foreign buyers. Lucas: Right. So you've got corn riding an industrial wave, and wheat stuck with a demand story that's getting worse by the day. The spread between them — corn at four sixty and wheat at six forty-five — has actually widened by about three percent in the last week alone. Luna: That's a meaningful move. What about supply? Any weather issues hitting one crop more than the other? Lucas: Not really. The US corn belt and wheat growing regions have both seen adequate moisture. The USDA's latest crop progress report, which came out Monday, rated both corn and winter wheat at similar levels to last year. So this is purely a demand divergence. Luna: Which makes it interesting because a lot of traders focus on weather first. If you're only looking at crop conditions, you'd miss this trade. Lucas: Exactly. And there's another layer here — the ethanol mandate. The Renewable Fuel Standard requires a certain volume of ethanol to be blended into gasoline. That's a regulatory floor under corn demand that doesn't exist for wheat. Luna: Even if gasoline demand dips, the mandate stays. So corn has that buffer. Lucas: It does. And we're seeing it in action. The crack spread for ethanol — the difference between ethanol and corn prices — has been healthy enough to keep plants running. Compare that to wheat, where there's no equivalent mandate for anything. Luna: So what's the outlook? If China's slowdown deepens, does wheat keep lagging? Lucas: I think so. Unless there's a supply shock — a drought in a major wheat exporting country like Russia or Australia — wheat is going to struggle to keep pace with corn. Corn has this industrial bid that's independent of the global macro picture. Wheat is more exposed to trade flows and economic growth. Luna: Speaking of which — if walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these going. buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, listener support is what keeps this ad-free. Every bit helps. Luna: Back to the grains — what about the other side of the equation? Are there any signs that corn's rally is overdone? Lucas: Possibly. If natural gas prices spike — say, a cold snap in the fall or a hurricane that hits Gulf production — ethanol margins could compress fast. And corn is now at four sixty, which is getting close to levels that might encourage farmers to sell more aggressively out of storage. Luna: So there's a ceiling, but the floor is solid. Lucas: For now. And the wildcard is the next USDA World Agricultural Supply and Demand Estimates report, which comes out next week. If they cut export forecasts for wheat, that could push it even lower relative to corn. Luna: Are there any other commodities showing a similar divergence? Where demand stories are separating from supply? Lucas: Cotton is a good parallel. It's been strong for most of July, but this week it's actually flat to slightly down — eighty-one sixty-eight, down about four-tenths of a percent. That's partly because the strong dollar is hurting exports, but also because there's some weather relief in Texas. Luna: So even within the grain complex, you've got these micro-climates of supply and demand that create opportunities. Lucas: Absolutely. And that's why just looking at a headline like 'grains up' is misleading. You need to know which grain and why. Luna: Corn has ethanol, wheat has China. That's the takeaway. Lucas: That's the takeaway. And as we move into August, keep an eye on the dollar index and natural gas. Those two numbers will tell you whether this divergence continues or reverses. Luna: Good stuff. Thanks, Lucas. Lucas: Thank you.