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Opinion: don't bet on more falls in UK wheat price

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Pessimists over London wheat prices shouldn't push their luck too far.

Delaying purchases has proved a winning strategy for buyers so far this year. The price of London's near-term contract, currently March, has fallen by more than 13% to within £2 a tonne of a 14-month low.

But a policy of holding fire may have seen its best results for now.

Firesale threat

Sure, there are plenty of pressures which may move grain prices lower still.

The next Northern Hemisphere harvest isn't so far away. That may bring the issue of huge global inventories to a head.

Farmers still sitting on big piles of last year's crop may swallow their distaste at selling at low prices just to empty silos for space to hold the next batch.

That can be a national problem too, as Russia has shown by considering subsidies to foster a rundown in the huge stocks built up through intervention buying even at robust 2008 prices.

Going cheap

But even if these do send prices lower again, London wheat, already priced below $4 a bushel, may not be first in the firing line.

Worst of a bad bunch - wheat performances so far in 2010

Kansas: -5.8%

Paris: -6.6%

Chicago: -7.6%

London: -13.0%

Prices for near-term contracts up to close on February 24

And the French wheat was sold cheaper than the other grain in the order, from Russia, which is supposedly setting the pace on export markets.

Sterling factor

Yet UK wheat has potential for a substantial bounce.

Sure, tighter supply and demand fundamentals could fuel a rally, although it will take more than the fall of 5% in global wheat plantings that the United Nations envisages to squeeze supplies when so much remains in silos.

But sterling looks a more significant dangers to holders of short positions in London wheat.

The pound last week hit its lowest against the dollar for nine months. It has weakened against Europe's single currency this month despite Greece's sovereign debt turmoil.

And there's plenty of reasons to think such declines might not be the end of the story. The £178bn of debt, the low tax take, the weak economic growth, are all potential reasons to doubt the UK and its currency.

A falling pound would inflate UK wheat prices however much of the grain is planted in North Dakota or South Australia.

That's something for bears and buyers to consider before giving London wheat more cold shoulder treatment.


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