Amidst its own estimated record world supply, how has the world wheat price recently managed to climb to multi-year highs?

Much of the recent strength has been down to a shrinking supply outlook for maize, mainly in Latin America, raising the intrinsic value of cereals per se and demanding increased use of wheat in the animal feed sector. 

This corn shortfall (details further down) has recently pushed the Chicago futures prices close to parity and on some physical markets, even to a premium over wheat.

It's quite a shift from earlier this year, when nearby CBOT wheat futures were trading a more normal US$1-1.50 per bushel premium to the usually far less valuable coarse grain.  

In the US itself, only about one tenth of wheat use is in feeds but the proportion could rise if the price differential stays slim.

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The same is true in Europe and is already happening in another big feed wheat user, China, where wheat has for some time been cheaper than maize.  Many Asian corn importers are also reported to be switching to wheat. 

So, while the first forecasts for 2021/22 world wheat production remain on an upward trajectory (plus about 13 million (m) tonnes at some 789m), stocks might actually start to head 'south' from the current season's all-time peak of almost 300m tonnes. 

That would hardly be a tight number for wheat in terms of the global stock/use ratio. However, things look less 'loose' when considering half this stock is held 'off-market' in China and likely to be drawn down in the substitution for maize in feeds. 

US and EU wheat stocks are smaller than usual
Although US and EU wheat stocks are smaller than usual, the non-Chinese element in total is no tighter than in recent past years when the CBOT market was sometimes trading half the current price.  Still, wheat sellers have to respect what is happening to the maize price. 

As well as the feed factor, wheat has been responding to some crop weather issues of its own. The main US winter wheat crop in worse condition than last year's while US spring wheat crop, emerging more quickly than usual despite an initial freeze threat, faces stress from dry weather and potential heat-waves as we go to press in mid-June.

Spring wheat (other than durum) accounts for about 30 percent of the total US wheat crop. These normally high protein hard milling wheats are, of course, prized for bread-making quality and used by some importers to 'blend up' cheaper, lower-grade wheats. 

Recently this factor has made some US spring wheat farmers wary of guaranteeing proteins on new crop sales – though, if the weather improves soon, this might prove a transient issue....

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by John Buckley
 

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