London Wheat Closes At Contract Lows

London wheat closed with March GBP1.50 lower at GBP93.75, the lowest ever level in the life of the contract and fully GBP15.45 down on the year to date.

Paris wheat fared marginally better, ending with March EUR0.50 lower at EUR125.25/tonne. That was close to the September all-time low of EUR123.20/tonne, the contract has now lost EUR10.00/tonne since the turn of the year.

Those two statistics clearly highlight what a torrid time London wheat has had so far this year. The EUR10.00/tonne fall in Paris wheat equates to GBP8.70 at today's exchange rates, meaning that London wheat has fallen at almost twice the rate of French wheat so far during 2010.

Clearly there are more than just currency fluctuations at work here. French wheat futures are of course milling wheat, whilst London trades feed-grade wheat, and nobody much wants feed wheat at the moment. Is there more to it than that?

Here's an arbitrary thought for you that has just entered my head, it is relatively common knowledge that Glencore, the feed wheat suppliers and by-product sales agents for Ensus, have been in the market recently buying some fairly hefty quantities of wheat distillers grains. And paying some pretty handsome prices too, GBP175/tonne in December up to GBP185/tonne more recently I hear.

The reason that they've had to do this is of course the severely delayed "button-pressing" at Ensus, which has been off and on more frequently than Mrs Nogger#1's scanties at the Rugby Club Christmas Night Out. They've had DDGS sold which they can't supply, ultimately they've had to buy-in some product to help fulfil old outstanding contracts.

Now, my befuddled thought is this, the lack of a timely start-up by Ensus has caused a dramatic tightening in availability, and therefore price, of DDGS in the UK. As they've had DDGS sold that they can't supply from their own production, then surely the flip side is that also they've had wheat bought, to potentially take it off the market, that ultimately they haven't been able to take delivery of either?

So as the distillers market has tightened up due to a sudden unexpected surge in demand, the wheat market has crashed due to a sudden and unexpected lack of off-take of existing contracts. Might that at least partially explain why London wheat has fallen by twice as much as it's Parisian counterpart since the turn of the year?