A rally in London wheat prices reflects the weakness of sterling rather than a pick up in demand for UK grain, traders have said after prices hit a four-month high.

London's January feed wheat made further gains on Thursday, hitting £108.00 a tonne, before retiring to close up £0.10 at £107.60 as tonne, the highest close for a spot contract since July 23.

However, the early rise reflected the strength of Chicago prices and a fall in sterling's exchange rate against the euro from E1.13 to below E1.10 over the last week, a City analyst told Agrimoney.com.

The pound fell 0.7% against the euro on Thursday amid worries over the exposure of UK banks to Dubai, which has asked for a debt standstill at its flagship government holding company.

"There has been no improvement in wheat's fundamentals, in the world as well as Europe," the analyst said.

'Boss the market'

Indeed, UK grain merchant Gleadell said that wheat prices were poised for a slide in 2010, as the huge global supplies, following two years of bumper harvests, hit home.

"With US, EU and UK wheat exports all lagging behind last year, the reality of available wheat and increased stocks will have to be addressed," the group said.

"Medium-to-long term, the true market fundamentals should return to boss the market and we could witness a price correction some time in the New Year if crops get through the winter with no weather-related problems."

Buyers vs growers

A grain trader told Agrimoney.com that, that the UK wheat market was at its quietest for two years, with "no pressure" to drive prices either way.

"Buyers know there's plenty of wheat around, so they're not bothered. And farmers aren't selling either.

"Farmers aren't short of cash – they have just got their subsidy payments in. They're sitting it out for now."

Paris wheat for January ended E2.25 lower at E131.00 a tonne.