News
15.02.2010
London wheat hits four-month low as buyers quit
London wheat prices fell to their lowest for nearly five months on Friday, as a further strengthening of the pound compounded the impact of soft domestic buying demand and weakness imported from Chicago.
Wheat for March delivery finished down Ј0.80 lower at Ј95.25 a tonne on Friday, a contract low, and the worst closing price for a near-term contract in London since mid-September.
The decline reflected in part a slide in the euro to 86.58p on Friday, nearly 2p down on Thursday's high, as optimism faded over a resolution of Greece's sovereign debt problem.
However, traders also noted a continuation of the weak demand which has been a feature of the London market this year, as well as a chill on the day from Chicago, where crop prices lost ground over fears for China's economy.
Silo clearance
"Consumers are sitting back – they know there is plenty of wheat out there," Jonathan Lane, trading manager at UK grain merchant Gleadell, said.
"There has been a complete lack of interest from feed companies. Sure, not many farmers are selling at these levels. But even if they did, they would find buyers hard to come by."
Trading volumes have been weak, with only 111 contracts of March wheat traded this week.
'Stagnant' market
His comments were echoed by Hugh Schryver, at rival grain merchant Glencore, who said traders were witnessing the market "stagnate".
"The lack of selling means that there is no incentive for merchants to make export sales, knowing that it may be a struggle to fill the vessels when they arrive," he said.
"But, there remains, in excess of 500,000 tonnes of wheat to export from the UK before the end of the season and probably 20-25% of the crop still unsold, so there is little potential for any longer term rise in values."
Mr Lane too noted potential selling pressure from farmers clearing storage facilities ahead of the next harvest.
"It's coming round. In the south of Spain they will be starting harvesting barley in May."
He added: "If the market does rally, it should be viewed as a selling opportunity rather than a bull run."
'Last resort'
The decline in continental wheat markets, while less marked, has taken farmgate prices near to the European Union intervention level of E104.10 a tonne, equivalent to about Ј90.60 a tonne at Friday's exchange rate.
"That will provide some floor, but I am not sure how of a reassurance that really will be to farmers," a London analyst said.
"It tends to be a bit of a last resort for them."
The scheme operates strict quality criteria, and requires farmers to pay transport costs, besides denying them, through selling, the chance to exploit any market upswing.
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