By Joanna Newman
GOOD news in the wheat field spells bad news for prices. An excellent winter wheat crop and active spring planting have reinforced the markets concerns over excess supply and driven the market southwards.
Wheat prices have now dropped to 20-year lows. In the past week alone, Chicago July wheat lost around 6%.
The contract closed on Tuesday (25 May) at 248.8¢/bushel, compared with 264.0¢ just a week ago and around 310¢ at the start of the year.
The winter wheat crop is rated 71% good to excellent by the US Department of Agriculture (USDA) in its latest condition report, only a slight deterioration from last weeks 73%.
Harvesting will soon be in full swing. The spring wheat crop is 68% planted, compared with a five-year average for the time of year of 77%, but is expected to catch up rapidly thanks to favourable weather conditions.
Falling prices have narrowed the premium of wheat over maize, making wheat more competitive as a feed-grain.
Talk of increased wheat demand from domestic livestock producers could help stem the downward trend in this grain market.
Certainly farmers will urgently need to find a home for their winter wheat crop within the next few weeks given the absence of storage space in US grain bins.
As reported last week by the USDA, inventories could rise from 722 million bushels to 969m bushels this year.
Exports will not be able to absorb the output. Shipments are running at disappointing levels as US wheat struggles to compete in world markets.