Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / The Great Grain Reversal Wheat Crashes While Corn Climbs
Transcript
- Lucas: Luna, if you look at the grains board today, it's telling a really interesting story. Wheat is down more than six and a half percent over the last five days, while corn is actually up two and a half percent. That kind of divergence doesn't happen every day. Luna: Yeah, and they're both staple grains — you'd expect them to move together most of the time. So what's causing the split? Lucas: Right. Let's start with wheat. The big driver is supply. We're right in the middle of the northern hemisphere harvest, and both Russia and Ukraine are bringing in bigger crops than the market expected. The Russian crop is estimated at over 90 million tonnes this year, and Ukraine's is also above average despite the ongoing war. Luna: So that's flooding the global export market with cheap wheat, driving prices down. Lucas: Exactly. And it's not just the size — it's the timing. Export flows from the Black Sea region have been very smooth this summer. No major disruptions. So traders are pricing in comfortable supplies into the fourth quarter. Luna: Meanwhile, corn is doing the opposite. What's propping it up? Lucas: A couple of things. First, U.S. planted acreage for corn came in lower than expected in the USDA's June report — some farmers switched to soybeans because of better margins. Secondly, ethanol demand has been really strong. With gasoline consumption still robust, the renewable fuel mandates are pushing corn usage higher. Luna: So you've got a tighter supply picture for corn while wheat is awash. That explains the price gap widening. Lucas: And if today was actually useful to you, the way these stays ad-free is listener support — buy me a coffee dot com slash fexingo. Luna: It really does help us keep the conversation going without any sponsors getting in the way. Lucas: So back to grains — another factor for corn is demand from China. They've been buying aggressively, building up feed reserves after their own domestic harvest issues last year. That's added a floor under corn futures. Luna: Does that mean the wheat-corn spread could get even wider? I mean, wheat at 658 and corn at 473 — that's almost 200 cents per bushel. Lucas: It could. If the Russian harvest comes in even bigger than projected, we could see wheat test the 620 level. Meanwhile, corn might inch toward 500 if the ethanol numbers stay hot. But there are risks on both sides. Luna: What kind of risks? Lucas: For wheat, any escalation in the Black Sea — new shipping restrictions or infrastructure damage — could spike prices quickly. And for corn, a sharp slowdown in the economy would hit ethanol demand hard. That's something to watch with the CPI cooling — if the Fed starts feeling confident about inflation, but growth worries emerge, ethanol could suffer. Luna: Right, we saw the June CPI came in at 332.6, down from the previous month. Core inflation also easing. That's good for the broader economy, but it means consumer spending might be softening, which feeds into fuel demand. Lucas: Exactly. So the grain divergence is really a microcosm of these two forces: ample supply from the Black Sea versus specific demand drivers for corn. It's a classic commodities story where the macro and micro collide. Luna: And we're only halfway through the growing season. A lot can change between now and the fall harvest in the U.S. Lucas: Absolutely. Keep an eye on the weather in the U.S. Corn Belt — any major heat wave or drought could flip the corn narrative overnight. But for now, the trade is all about that divergence.