Market Morsel: Corn dragging on wheat.

Market Morsel

The wheat market does not operate in isolation. One of the biggest drivers of wheat pricing is what occurs in the corn market.

Corn and wheat have a substitution effect; they can be used for the same purposes, whether animal feed or biofuel production. If one commodity gets too expensive, then buyers will substitute for the other.

The first chart below shows the relationship between wheat and corn futures. Typically, the two contracts will follow one another. Corn has been coming under pressure, and that flows through to wheat. At present, corn is dropping to levels that have not been seen since 2020. This isn’t a good omen for wheat.

In the second chart below, the stocks-to-use ratio is displayed. The stocks-to-use ratio is a calculation of both demand and supply. A higher stock-to-use ratio means lower pricing.

The United States has had the highest ratio since 2019. If corn prices continue to slide, then this places a ceiling on the price of wheat.