Corn and wheat prices have surged to their highest levels in more than three years. But the forces driving recent rallies for these two crops are notably different.
Wheat futures settled 3.1% higher at 784 cents per bushel on Friday after hitting a high of 790.25 cents, the highest since Feb. 14, 2023 when it traded 797.5. Wheat jumped 12.1% this week, its biggest weekly gain since March 2022. Overall, wheat futures were up more than 54.5% year-to-date, amid escalating Russia-Ukraine tensions in the Black Sea.
Corn futures settled 0.6% higher at 536.5 cents per bushel Friday after hitting a high of 541.25 cents, the highest level since July 28, 2023. Corn gained 5.5% for the week and is up 15.6% in August, on pace for its best month since April 2021 when it rose 19.31%. The contract is up 21.8% year-to date on tighter U.S. supply expectations and strong demand, with constrained Ukrainian exports adding pressure to global supplies.
Corn's recent rally is largely driven by mounting concerns around the supply of the U.S. crop and a weak outlook, while disruptions to Ukrainian exports continue to add pressure to the global supply.
"From the beginning of August to now, the consensus in the market is that there is less supply than we thought at the beginning of the month," said William Osnato, Barchart director of commodity data research and analysis.
Osnato points to a number of reasons for this. A recent report by the U.S. Department of Agriculture (USDA's) August World Agricultural Supply and Demand Estimates (WASDE) report lowered corn yield estimates more than traders expected, despite projecting the second-largest harvest on record. The agency cut its yield forecast by 2.3 bushels per acre to 180.7.
In addition, Osnato said the crop's outlook got further impacted by the disappointing field observations from the Pro Farmer's Crop Tour. Pro Farmer found extreme July heat had impacted the crop, after excessive rain in June for many areas in the U.S.
"We are a little past the peak point of the growing season, which is late July, early August, but you can still have poor weather impact the crop at this point," Osnato said. Several portions of the eastern Corn Belt were impacted by excessive rainfall during August, along with the development of corn fungal diseases later in the growing season.
Jim McCormick, co-founder and chief operating officer at AgMarket.Net, told CNBC that concerns about the U.S. crop have become more important because global supplies were already tight.
"We thought the world was going to be bailed out by the U.S. supply. Now the U.S. supply is becoming questionable, and the market's moving up into a rationing mode," he said.
While not as important as the U.S. crop itself, Osnato said other factors like the extreme high temperatures and drought in Europe over the whole summer significantly impacted their corn production. A strong export demand from Europe added pressure on the already constrained supply. In its report, the USDA raised exports by 75 million bushels to 3.3 billion, reflecting increased global demand and constrained exports for Ukraine, which is a major global corn exporter. Osnato said the effect, however, is less important for corn than for wheat, adding that some disruption to Ukrainian corn exports had already been priced into the market.
McCormick said Europe's drought-hit corn crop could also add pressure to wheat, as less available corn may lead the region to use more wheat for animal feed and keep more of its wheat at home rather than export it.
Wheat's rally, unlike corn, is tied to disruption in the global supply.
Grain export disruptions have pushed prices up, after reports that tensions escalated between Russia and Ukraine in the Black Sea region. Russia and Ukraine together account for more than a quarter of global wheat exports. Growing fears around supply disruption in the region have been a strong catalyst to the price increase.
"You've had a number of different disruptions in the Black Sea. That's definitely the main story," Osnato said, explaining that damage to Russian grain-export infrastructure caused expectations for near-term Russian wheat shipments to fall. Black Sea being the largest point of exports.
Russia is the biggest wheat exporter and a low-cost supplier whose prices often influence the global market. But the crop has not been moving much through the Black Sea. Recent attacks in the Sea of Azov, which is a feeder into the Black Sea and additional military strikes on grain export facilities, oil tankers and vessels in the Black Sea region have made it challenging for shipping firms to even get insurance.
"What moves the market is a change in expectations, and Russia will not be able to ship as much wheat by several millions of tons because the capacity to ship out of the Black Sea has been significantly damaged," Osnato said.
Weather has added another layer of pressure to wheat supplies. Osnato said a severe heat wave cut European wheat production by roughly 8 million to 10 million tons, while drought also reduced hard red winter wheat output in Texas, Oklahoma and Kansas.
Beyond the fundamental supply concerns driving both these crops, the move to multiyear highs can itself attract more buying.
"When a contract hits new highs and multi-year highs, then you start to get momentum and systematic traders interested. So now you have fundamental and systematic traders looking at the market positively, and so those are all sort of mixing together," Osnato said.
