By Joanna Newman
RECENT strength in US wheat prices is unjustified and analysts warn the market could be facing a correction.
The Chicago September futures contract has rallied to a three-month high, dragged upwards by strength in maize and soya beans.
The contract closed on Tuesday (10 August) at 279.25¢/bushel, an 8¢ gain on the week.
Persistent hot, dry weather across many growing regions of the US has hurt yields for maize and wheat, and caused prices for grains and oilseeds to climb.
The US Department of Agriculture has revised its weekly ratings of spring wheat quality downward, while several tours of inspection are reporting disappointing yields and widespread damage from the weather.
However, the strength in wheat appears overdone, given the high inventories of hard red winter wheat and the prospect of a substantial harvest despite the crop damage.
There is still a large amount of low-protein winter wheat unsold, which will need to be shifted to create storage space in the grain elevators for spring wheat.
With wheat currently uncompetitive against maize as animal feed and exports struggle producers will have difficulty off-loading their wheat.
The problem wont wait – already 20% of spring wheat has been harvested, ahead of the five-year average for the time of year at 14%.