Wheat and barley prices will remain closely tied to corn values this winter and that's a good thing, says an analyst.
The stocks-to-use ratio of key corn exporters around the world is a major driver of prices for the commodity.
"It's sitting at a record low," said Dan Basse, president of AgResource Company.
That is not going to change until there are back-to-back record corn crops in South America and North America.
The South American crop could be in for trouble, according to some analysts. They are concerned about a second consecutive La Nina weather event developing during South America's summer that would result in dry conditions for Argentina and southern Brazil.
That is exactly what transpired this year, leading to one of the worst winter corn crops in Brazil's history.
Basse is pretty confident there won't be a bearish downturn in feed grain markets until possibly the next North American harvest, which is a year away.
The demand side of the equation is also encouraging despite a recent report by the United States Department of Agriculture's Foreign Agricultural Service forecasting a five percent reduction in China's hog herd in 2022.
"Low prices and disease outbreaks in 2021 led to significant slaughter and delayed restocking," stated the FAS report.
The FAS believes China's pig crop will fall to 550 million hogs, down from 580 million in 2021.
Basse and other analysts don't think that will be the case. They expect the herd to grow as China's hog sector continues to recover from African swine fever.
But the bigger factor for China's feed grain demand is the ban it placed on feeding food waste to animals starting September, 2020.
"When they took that out of feed rations that was a really big deal," he said.
That is 30 to 34 million tonnes of alternative feed ingredients that suddenly evaporated, resulting in huge additional demand for feed grains.
That is why China will likely import more than last year, which was a slightly more than 50 million tonnes of all feed grains combined.
The country has already bought five to six million tonnes of Ukrainian corn and 17 to 18 million tonnes of U.S. corn.
Corn offers the best feed value right now, selling for US$10 to $20 per tonne less than feed barley.
Reports have surfaced that China recently cancelled four or five cargoes of barley.
"Barley and feed wheat prices have gotten very dear, so those markets could suffer," said Basse.
Wheat and barley prices have been rising due to short crops in Canada, the U.S. Northern Plains, Russia and Kazakhstan.
That is helping prop up the entire feed grain complex, along with Brazil's disastrous second crop of corn.
The short global supply of feed grains and strong demand out of China should keep the complex well supported throughout winter 2021 and spring 2022.
"I imagine that barley and feed wheat and those kind of things will stay elevated," said Basse.
"I don't see a bear market developing."