By Joanna Newman

THE oversupply situation in the US wheat market will get far worse this year before it starts to improve slowly next year.

Thats the sobering message in the latest US Department of Agriculture (USDA) Supply and Demand forecast.

Although planted acreage and crop yields are expected to decline, this trend alone is not enough to restore the supply/demand balance.

Domestic consumption, animal feed usage and exports are simply unable to keep pace with Americas wheat output.

Stock levels will rise from 722 million bushels at the start of the 1998/99 season to 969m bushels at the end of the year and diminish by only 100m bushels to 869m at the end of next year.

Because of reduced acreage, this years winter wheat crop, due to be harvested within weeks, will shrink 14% annually to 1.61 billion bushels.

Yields should be high, with 73% of the crop rated good to excellent in the latest USDA crop progress report.

Farmers will face a storage problem given that grain elevators are already overflowing.

Meanwhile spring planting is continuing apace with 60% in the ground, in line with the five-year average.

However there are some concerns about wet conditions causing delays over the next week.

Given these mixed signals, the wheat market has had a volatile week.

Prices reacted positively to the prospect of falling inventories next year, then quickly retreated.

The Chicago July futures contract closed on Tuesday (18 May) at 264.0¢/bushel, down from 270¢ late last week.

  • Click here for current Chicago wheat prices