Corn and soybean growers yearning for higher prices may have to look at another market for signs of a turnaround: Wheat could be the bell cow for those hopes as grains head into the end of the year.

For starters, wheat-corn spreads typically turn lower as corn gains ground in the fall. Weather could also produce a beneficial counter-seasonal trend if seeding conditions in major growing regions swell wheat’s premium. Normally corn gains when supply and demand shifts take hold, so a rising tide from wheat could spread over to lift all boats.

Those wheat-fueled gains in corn are relatively rare, but when they happen, hold on for the ride. Two of the biggest rallies in history came on the heels of exploding wheat markets. Even if wheat can’t provide quite the same help this time around, it could improve the odds for corn and soybeans.

Inventories thin out

Dry fields from the U.S. to Europe and South America are the worry this year, as farmers dig into fall harvest and prepare ground for seeding. La Nina cooling of the equatorial Pacific only adds to this uncertainty

Wheat, in this case the contract for the soft red winter classes settled in Chicago, tends to gain in value against corn from June until October. Think about it: wheat fields are cut in summer, boosting supplies when inventories of corn and soybeans are running thin. Prices normally reflect those dynamics but trade places come October, when wheat stocks are emptied and bins in corn and soybean country fill up.

Chicago December wheat closed $1.81½ ahead of December corn after release of USDA’s Sept. 12 World Agricultural Supply and Demand Estimates. That’s around 30% above the spread average over the past 20 years.

Before 2007 the wheat-corn premium normally didn’t exceed $2, but those limits changed following the financial crisis, pandemic and Russia’s invasion of Ukraine. The spread topped out at an all-time high of $7.55 near the end of February 2008 when SRW hit a record it didn’t exceed until 2022. The big ask for wheat now is whether it will regress toward the mean or take on a life of its own.

Dry fall for seeding

Big moves in wheat can be few and far between:

But when wheat starts to rock it can really roll. The nearby jumped 85% in Chicago after Russia’s “annexation” of the Crimea.

The Black Sea region is in the news again, thanks to an extremely dry fall, though most areas do not face severe conditions. Fields in South America are in similar shape and 58% of U.S. winter wheat is in drought, compared to 32% on average.

World inventories are on the decline, expected to reach the lowest in a decade by June 1, 2025. Traders are watching, though not losing any sleep over the situation as it stands.

Dollar’s demise?

One variable to watch is the value of the U.S. dollar – not because it changes the price on world markets, because exchanges adjust quickly to differences in the dollar, euro, ruble, yuan and yen. Rather, a cheaper greenback can lift the value of commodities in general – all for one and one for all, as it were.

But the direction of the dollar is unclear following last week’s decision by the Federal Reserve to cut interest rates for the first time since 2020 with a “jumbo” reduction of half of 1%, doubling down on what some investors expected. This temporarily raised hopes the central bank would continue to reduce its target for benchmark Federal Funds in big chunks, but Chairman Jerome Powel quickly walked back those expectations.

Interest rates matter because higher rates tend to lure money to a currency. The more expensive a currency’s value, the lower its value tends to be when denominated in that currency compared to others. But the decision from the Fed was split, with a rare dissent from one participant. Some officials favor bigger cuts while others back a more gradual pace. This difference alone increased the market’s overall anxiety because investors like certainty.

Traders in general appeared ready to buy what the Fed was selling, lifting stocks to a record high as major indexes prepared to rebalance ahead of Friday’s “triple witching,” when futures, options, and options on indexes expired. Next week also marks the beginning of a new fiscal year, another reminder that farm program changes could add new wrinkles for risk managers, if and when Washington gridlock allows.