Mecardo Analysis - A look at the wheat-corn ratio.

The wheat-corn ratio has crept above the average since the turn of the century (Figure 2), currently trading at 1.45. Although the ratio has been much higher in the past, it is currently at the highest level since mid-2015.

It is also important to examine the seasonality of the ratio. There is a tendency for the ratio to increase in the Aug-Oct period (Figure 3). This is logical as it occurs during the harvesting period for US corn, while growers selling pushes the price down.

We can see that for the past two months the wheat ratio has been tracking above the average and well above levels seen during the past two years of ample stocks.

 Key points

   * Wheat and corn follow one another with a high degree of correlation (0.86).

   * As the wheat-corn ratio increases the % of wheat used for feeding purposes will decline.

   * The wheat-corn ratio is currently at the highest level since mid-2015.

What does this mean?

If the trend of an increasing ratio continues wheat will be unattractive for US feeders to utilize. This will result in a reduction in US wheat demand, with wheat futures reacting downwards to meet domestic US demand.

Alternatively, the corn price could be on the low side and the ratio could as a result of a move to higher corn pricing. The key will be to watch the corn ratings, over the next two months.

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