December 2, 2009

EU wheat up as investor demand overrides market fundamentals

European wheat futures traded higher Tuesday (Dec 1) with prices continuing to look disconnected from market fundamentals.

Prices look "high" against underlying fundamentals, said BNP Paribas Fortis in its monthly commodity report.

"If Australia avoids more drought and next summer's European harvests are as good as they currently promise then the expected surplus over consumption will grow even wider," said the bank.

Paris January milling wheat futures closed up EUR0.75, or 0.6 percent, at EUR132.25 a tonne, with 2,373 lots moved. London May feed wheat futures ended up GBP0.50, or 0.4 percent, at GBP113.50/tonne, with 152 lots moved.

Market direction is "all fund and speculator driven," which is leading hedgers to reduce their exposure to futures, buying options instead, said a London-based broker.

Market participants looking for risk management tools are prepared to pay a premium for options rather than having to continue paying margins on futures positions when futures prices are rising despite bearish fundamentals, said the broker.

Standard-quality wheat prices in the French cash market delivered at Rouen were down EUR2 from Friday's prices at EUR122/tonne.

Paris-based February rapeseed traded up EUR1.50, or 0.5 percent, at EUR283.50/tonne, with 1,729 lots moved. Liffe's Paris January corn traded up EUR1.00 or 0.7 percent, at EUR136.50/tonne, with 275 lots moved.