US wheat market at a 20-year low

By Joanna Levin

THE US wheat market is at a 20-year low, with futures prices only 7¢/lb above the level set in 1990. Another small decline and prices will quickly reach their lowest levels since 1970.

Chicago Board of Trade figures for the September wheat contract closed on Wednesday (August 26) at 245.25¢/ bushel, down 2.25¢ from the previous day and around 255¢ a week earlier. Prices have dropped from 370¢/ bushel at the start of the year.

The unstable world financial market and fears of a global recession have driven prices lower. The large carry-over stocks from last years winter wheat crop will soon be swollen by this years expected record spring wheat crop.

With ideal weather conditions in the USA, American farmers have already harvested 61% of their spring wheat crop. That compares with only 21% at this point last year and a five-year average of 23%.

According to the USDA, 60% of the crop is rated good or excellent. As in the case of maize, there is inadequate storage space to keep wheat under cover and this is creating a crisis in mid-west.

US wheat prices now stand at 5% below the level at which the US government guarantees loan deficiency payments to farmers. Under old legislation, the government would have taken wheat off farmers hands when prices fell below the average loan rate.

But new legislation states that farmers also have the option of accepting a federal payment equivalent to the difference between the national average farm loan rate of 258¢/ bushel and the actual market price.

Farmers who choose this option retain full responsibility for disposing of their wheat. Under this programme, farmers have so far received an average of 22¢/ bushel compensation on 689 million bushels. This has created an additional overhang of wheat in the market place waiting to be sold.