Bullish times for US wheat sector

By Joanna Levin

US wheat prices have found strength since the start of October following months of losses. The market has reacted bullishly in recent days to hints of a range of measures to help Americas beleaguered farmers ahead of the elections in November.

This includes possible food aid to Russia, which could help alleviate the overflowing grain bins in the American wheat belt. The US Department of Agriculture is considering raising Loan Deficiency Payment (LDP) subsidies and increasing the acreage under the Conservation Reserve Program (CRP) which would set aside more arable land.

Weather-related delays to the winter wheat crop have also helped the market. Only 58% of the crop is planted, compared with a five-year average of 70% at this time of year.

The Chicago December futures contract settled on Tuesday 13 October at 296.0 cents/bushel, up 5.6 cents/bushel from Monday and up from around 286 cents a week ago.

However, there are clouds on the horizon that could push prices lower again in coming weeks. The US will be left holding 902m bushels of carryover stocks at the end of the 1998/99 season according to the latest USDA supply and demand report, an upward revision from last months estimate of 885m bushels.

This is a worrying increase from last season, when carryover stocks totalled 722m bushels. Thanks to ideal weather conditions, the American yield has improved from 39.7 bushels/acre in 1997 to 43.3 bushels this year.

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