By Joanna Newman
US wheat prices have extended their rally into a second week but analysts warn that the market is still vulnerable.
High inventories and poor demand could quickly resume the decline that has already dragged prices down by 25% over the past five months.
The Chicago March futures contract settled on Tuesday (9 March), at 255.5¢/bushel, up from 253.25¢ a week earlier and up from 240¢/bushel in late February.
On the supply side, domestic inventories are set to increase with the imminent US winter wheat harvest which promises high yields. Weather conditions have so far been favourable, although there is the possibility of a frost scare in the southern wheat-growing region of the USA.
Meanwhile domestic demand is expected to drop. This weeks wheat rally has helped restore the competitiveness of maize for animal feed and this will result in a drop in domestic feed demand for wheat.
During February, the weakness in wheat prices encouraged cattle producers to substitute wheat in place of maize in their feed rations.
The federal food-aid programme to Russia will do little to dent domestic wheat stocks.
The first freight tender for wheat to Russia has been delayed from mid-March but is reported to be for 250,000 tonnes, half the amount first mooted.
US exporters suffered another blow this week when Pakistan awarded its latest 300,000t wheat tender to Australia.