Nogger's Blog

01/02/12 -- What a morning it's been already with London wheat jumping GBP4.35/tonne on the Nov12 position at one stage. Paris wheat was up EUR6.00/tonne early doors too, before falling back a little to currently trade around EUR3-4.00/tonne higher.

There's not actually a great deal of new news in the marketplace this morning. It would seem that there were more shorts out there on wheat than was generally realised, and they're taking an unforeseen pasting.

Maybe they can't afford the margin calls? Or maybe they've just decided to get out of a market that's looking too volatile and too unpredictable to operate in?

Yes, there is a sharp cold snap on the way, or already arrived for some, in Europe, Ukraine and Russia. There's no proof of any damage done yet though it's all conjecture. We already knew that a large percentage of Ukraine would need to be replanted in the spring.

We also already knew that Russia was planning on capping it's grain exports at 24-25 MMT. That's been in the market for months.

It certainly seems that the bulls are back in charge though. It also looks like we've had a hefty reminder just how illiquid the London wheat market in particular really is.

Simply put, feed wheat is not worth GBP170/tonne in the current market, never in a month of Sundays. It may say GBP170/tonne on the board, but you try finding a buyer who wants the physical wheat at that, not a short closing out his paper position because he's had enough of operating in a market that defies logic.

That will create an even less liquid market, which is ultimately not a good thing for anyone.

Bear in mind Ensus is shut, due at least in part to wheat being at these levels, and they're not the only ones. Icklingham has gone, Rotherham has also packed up.

Scottish bakery firm Kingdom Bakers, based in Kirkcaldy, went into receivership last week and this morning the word on the streets is that a leading east Midlands flour miller Smiths has gone into administration.

So if you're long wheat give yourself a little pat on the back, and take a stroll down to the shed to admire the shiny stuff. And take a spoon and a bowl of milk with you because you might just have to eat your expensive asset yourself, because there won't be an orderly queue forming at this price. Unless you want to swap it for a Greek or Portuguese bond that is, they're worth a lot - on paper.