London Wheat Ends Inexplicably Higher

18/02/11 -- EU wheat closed mixed with London wheat mostly higher and Paris wheat lower. Mar London wheat closed GBP1.50 higher at GBP205.00/tonne and new crop was up Nov GBP0.90 to GBP174.05/tonne. Mar Paris wheat fell EUR1.25 to EUR262.75/tonne, with Nov down EUR0.75 to EUR234.75/tonne.

It was a strange old day with Mar London wheat opening GBP4/tonne lower at GBP199.50, the first time it had traded below GBP200/tonne since Jan 21st. It rebounded fairly quickly from that, but still traded in negative territory for most of the day.

Exactly how London managed to finish higher is frankly beyond me, the fact that it is cheaper than Paris wheat is the only hint of an explanation I can offer. Other than that the cards look stacked heavily against it from my side of the table.

Firstly, quality wheat is what there is a world shortage of, not feed wheat. Quality wheat is what North Africa and the Middle East are buying. Nobody wants British feed wheat at these levels, within the EU Danish wheat is far more competitive.

Secondly, We've just rescinded the EUR12/tonne import duty on feed wheat coming into the EU, and thirdly Australia has plenty of much cheaper feed wheat to export, some it it possibly to us.

On top of that the pound was higher today as the market starts to warm to the idea that inflationary pressures will start to push UK interest rates up pretty soon.

Meanwhile UK livestock numbers are falling as producers exit the industry, or at least take time out, faced with soaring feed bills and generally slug-like price rises for their end product.

To round off the whole little lot, US wheat futures have taken a late turn for the worst (probably too late in the day to influence EU prices) ahead of a three-day weekend. As I type this report, just before the closing bell in Chicago, CBOT wheat is 27c lower

Unless things change dramatically over the weekend, London looks set to open sharply lower on Monday morning I'd say.