The following, from the Illinois Agricultural Association, was written on Thursday, April 14, 2011.
The fact that the price of wheat this week dropped below the price of corn for the first time in 15 years occurred with little fanfare.
Futures prices for both crops on Thursday still were above $7 per bushel.
However, the unusual shift in the corn/wheat price relationship could be a signal that corn prices, which earlier this month surpassed the record ($7.65) set in June 2008, may have peaked and now could come under pressure.
“We had wheat below the price of corn. That’s highly unusual,” said Dale Durchholz, senior market analyst with AgriVisor. “It reinforces the idea that wheat is more attractive as a feed ingredient for livestock.”
Wheat contains a higher protein content than corn, according to Durchhholz.
And there’s plenty of it. Carryover vs. usage for wheat currently is at 34 percent compared to just 5 percent for corn and 4 percent for soybeans.
“As a feed, wheat is worth about 12 percent more than corn,” Durchhholz said. “So (livestock producers) can pay a little more for wheat than corn and get the same nutritional value.”
Durchholz estimated there is about 100 million bushels of soft red wheat currently available and another 50 million bushels that could enter the feed market at harvest.
“150 million bushels of soft red wheat would go a long way to easing the tight supply of corn,” he said. “Wheat could be a drag that keeps corn prices from going up.”
Authors of the CME Group Daily Livestock Report last week estimated that at prices of $7.55 per bushel for corn and $342 per ton for soy meal, soft red wheat can be used economically as a feed substitute up to a price of $8.27 per bushel.
However, wheat has a high starch content, which can cause digestive problems in cattle. It is recommended that wheat make up no more than 30 to 50 percent of a total livestock diet, depending on the situation, according to the Daily Livestock Report.
Overall, Darin Newsom, Telvent DTN senior analyst, also sees some bearish signs in the commodity markets. He noted some commodities in March traded above the February high and below the February low before closing lower for the month, a situation he referred to as a key bearish reversal.
“There are some cracks showing up in the commodity markets,” Newsom said Wednesday during a DTN webinar.
Newsom and Durchholz reported a large amount of investment money exited commodities in recent weeks.
“It created a drag on just about every commodity market,” said Durchholz, who noted crude oil prices slipped about $7 per barrel from recent highs.
On the flipside, demand for farm products remains high while the U.S. dollar has been incredibly weak over time with no signs of strength.
A weak dollar “should continue to support commodity markets as a whole,” Newsom said.
Durchholz added, “there is potential for higher (commodity) prices. But playing a speculative game you have to consider the risk, and the risk is huge.”
Source: Illinois Agricultural Association
Posted by Haylie Shipp
