Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Wheat Is Surging While Corn Stalls
Transcript
- Lucas: Wheat is up 4 percent in the last five days. Corn is basically flat. And the question I keep hearing is — why, when both are grains, when both face the same dollar headwind, when both sit in the same macro environment? Luna: It's a pretty striking divergence. Especially when you look at the broader commodity picture — Brent crude down 4.4 percent, silver plunging 6.5 percent. Grains are supposed to follow the macro tide. Lucas: Right. And normally they do. But this week, wheat — specifically Chicago soft red winter wheat futures — punched through 6 dollars 13 cents a bushel. Corn is sitting at 4 dollars 17. That's a nearly 50 percent premium for wheat. That's not normal. Luna: So what's driving the wheat side? Supply? Demand? Both? Lucas: Start with supply. The U.S. winter wheat crop — that's the one being harvested right now — has taken a hit from drought in the southern Plains. Kansas, Oklahoma, Texas. The USDA's most recent crop condition ratings were below average. But it's not just the U.S. The Black Sea region — Russia, Ukraine — they've had dry weather too. And Russia is the world's largest wheat exporter. When their crop comes in smaller, the global market feels it. Luna: And corn? Isn't the U.S. the biggest corn exporter? Why isn't corn feeling similar pressure? Lucas: Because corn's story is different. The U.S. had a massive corn harvest last year. Carryover stocks — what's left over from the previous season — are comfortable. And this year's planting went smoothly. So there's no supply scare. Plus, export demand for U.S. corn has been tepid. China, which was a huge buyer a couple of years ago, has been scaling back. They're diversifying — buying more Brazilian corn, for example. Luna: So wheat is the tight market. Corn is the loose one. That explains the price gap. Lucas: Exactly. And there's another factor — the dollar. The dollar has been strong, which usually hurts dollar-denominated commodities because it makes them more expensive for foreign buyers. But wheat is bucking that. Why? Because the supply crunch is severe enough that even with a strong dollar, importers have to buy. They can't substitute away easily. There's no alternative for a Russian or a Ukrainian shortfall. Luna: It's an inelastic demand story. If you need bread, you need wheat. Corn is more of a feed and fuel crop, and there's more flexibility there. Lucas: That's exactly it. And it shows up in the data. Look at the USDA's export sales reports. Wheat export commitments are running ahead of last year's pace. Corn? Not so much. So the market is pricing two completely different fundamental pictures into two contracts that, on the surface, look similar. Luna: If walking through the economy with us has made something click — whether it's wheat versus corn or something else — we'd love to keep doing this ad-free. It's listener support that keeps the show independent. So if you're able, you can find us at buy me a coffee dot com slash fexingo. No pressure, just a genuine thanks. Lucas: And we mean that. Every bit helps. Now, back to that wheat rally — how much further can it go? The market is pricing in a pretty significant risk premium right now. If the drought continues into July, when the spring wheat crop — that's the higher-protein stuff used for bread — is developing, we could see another leg up. But if rains come, that premium could evaporate fast. Luna: And the dollar isn't going to cooperate forever. The Fed is hawkish, the Warsh era is supposedly more hawkish than expected. That keeps the dollar bid. At some point, even inelastic demand hits a price ceiling. Lucas: Right. So the bull case for wheat is: supply keeps tightening, global stocks shrink, and importers keep scrambling. The bear case is: the dollar strengthens further, demand destruction kicks in, and maybe the Black Sea crop comes in better than feared. At these levels, a lot of good news is already priced in. Luna: It might be a trader's market more than an investor's. For a long-term holder, wheat at 6 dollars is historically high. But it could go to 7 if the weather breaks wrong. Lucas: And that's the thing about commodities — they're not like stocks. A stock can trade at a high P/E for years. A commodity price spike forces its own resolution. High prices cure high prices. Either demand falls or supply comes back. The question is timing. Luna: So what's your call, Lucas? Are you buying the wheat breakout or selling it? Lucas: I'm watching the weather and the dollar. If the dollar index holds above 105 and the Plains get rain in the next two weeks, I think wheat tops out here. If the drought persists and the dollar weakens even a little, 6.50 is within reach. But I wouldn't chase it at 6.13 without a catalyst. Luna: That's a very Lucas answer: data-dependent, no hot take. Lucas: Guilty. But that's the commodity game. You're not betting on a story — you're betting on a balance sheet of global supply and demand that changes every week.