Nogger's Blog

22/10/10 -- Open interest in the Paris November wheat futures fell to just over 60,000 lots yesterday, well below the peak over over 141,000 at the beginning of September.

It's been pretty surprising how such an exodus has managed to occur in a reasonably orderly fashion. Also of interest is the increase in OI in the Jan, March and Nov11 contracts, with Nov11 OI now higher than the nearby Nov10 position.

That would appear to suggest that funds have been happy to roll their positions into the deferred months rather than liquidate them entirely and that they beleive in the longevity of these prices.

The Nov10/Nov11 spread is currently EUR33/tonne in Paris and GBP24.75/tonne in London. Many now appear to think that that differential is too wide.

Does that mean that old crop is over-priced or new crop under-priced? Given the current rate of UK and EU exports it would seem unlikely that we are going to see a collapse in old crop values any time soon.

So new crop must be undervalued then? I mean, from a UK perspective, we are going to have Vivergo scrapping with Ensus for every tonne of wheat going by then aren't we? Like a Middlesbrough and Hull slapper fight on a hen weekend in Scarborough?

You could certainly argue it that way, but somehow I just don't see it. Certainly we won't approach next season's export campaign with quite such a gung-ho attitude I suspect. If indeed there is an export campaign at all.

New crop wheat prices are much more likely to be influenced by the fortunes of Russia, Ukraine and Kazakhstan. They will after all be ultra keen for an injection of foreign mazoolah by then.

Yes I know that winter plantings there are down, but there's always the spring. At least if it hasn't been planted it won't be subject to winterkill will it. And then again of course, who'd be willing to bet on Vivergo starting up on time?

I just don't see UK wheat prices shooting up from GBP100/tonne to GBP150/tonne in the space of a couple of months and staying there forever. It's just not realistic, what would cereal growers have to moan about for one? Well yes I know they'd have a bloody good go at finding something, but even so.

Now they can moan that they wished they hadn't sold a tonne, and dine out on that quite happily until next summer. The market needs to provide them with something to drone on and on about incessantly during 2011/12 doesn't it? So I've drawn up a few odds on what might happen to generate next season's almost inevitable malaise:

7/2 Vivergo plant doesn't turn a cog during the whole of the 2011/12 season
5/1 Perfect growing season produces a record UK wheat crop of 18 MMT
10/1 Renewable fuel mandate scrapped
25/1 Ensus plant closed following North Korean nuclear attack on Middlesbrough
33/1 Wayne Rooney signs for Middlesbrough and buys Ensus just so he can close it down 'cos he doesn't like the smell