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Evening markets: EU, Ukraine fears lift wheat. Softs soften

Corn and soybean futures lost most of the gains of the last session, as befits a Tuesday – by repute the day of turnarounds in Chicago.

But wheat futures managed to escape the sell-off, lifted by further tweaks to some familiar problems – the Ukraine crisis and European wheat quality.

Concerns over Ukraine revived after Nato sources said that Russia has some 20,000 troops in battle-ready formations on the border between the two countries, above the 15,000 that US officials said were stood there last week.

'Active hostilities'

The fear is that Russia will strike in response to gains made by Ukraine forces in their battle against, apparently Moscow-backed separatist groups.

With both Russia and Ukraine major wheat exporters, unrest in the region bodes ill for exports.

As a reminder that the crisis is effecting agricultural groups, grains-to-chicken group MHP said that it had suspended operations at a poultry production plant in eastern Ukraine's Donetsk region, the centre of pro-separatist activity, because of "active hostilities" at the local town of Shahtarsk.

The move - which will mean MHP switching some hatching egg production to another Ukraine plant, and relying on imports from Europe – was ordered "for the sake of its employees' safety", the London-listed group said.

'Additional rain…'

As for the European wheat quality problems, forecasts indicated no let-up in the rains at the centre of the setback which, in falling on ripe grain, have encouraged germination and left considerable quantities of milling wheat fit only for feed.

"Additional rain fell from eastern France to Poland Monday perpetuating small grain and late winter rapeseed harvest delays," World Weather said.

"Some rain totals of 1.00-2.00 inches occurred in central and eastern Germany."

Looking ahead, "additional waves of rain will fall over the next two weeks maintaining a slow harvest pace", the weather service said, adding that "grain quality declines continue to be a serious concern, and a prolonged period of dry weather is needed immediately to stop the deteriorating crop trend".

Price moves

Wheat futures for September soared 1.6% to $5.52 ½ a bushel in Chicago, the best finish in nearly a month.

That said, Kansas City hard red winter wheat fared worse in adding a relatively small 0.7% to $6.38 a bushel for September even though, on fundamental terms, it should be more favoured by Europe's problems, being a higher quality grain.

Chicago wheat's gains appear to be being fuelled by position closing among hedge funds, which had, as of a week ago, built their net short in the contract's futures and options to the second highest level on record.

In Europe itself, Paris wheat for November added 0.9% to E174.75 a tonne.

'Beneficial rainfall'

For soybeans, the focus was on the growing prospects of a huge US harvest, lifted by US Department of Agriculture data overnight showing the condition of the crop remaining stable at 71% "good" or "excellent" despite dry conditions last week.

Investors had expected a decline of 1-2 points.

And the prospect of a strong yield was underpinned by better-than-expected overnight rains and increased confidence of more moisture on the way.

"Weakness in the row crop markets stems from benefits of overnight rains stretching further into eastern regions of the Corn Belt," Benson Quinn Commodities said.

"Additionally, forecasts continue to indicate that many key growing regions, including western regions, will receive beneficial rainfall this week.

"Rains of 1-2 inches, possibly more, are expected in many key areas through Iowa and Illinois."

Informa estimates

OK, Informa Economics left its estimate for the US soybean yield at 44.5 bushels per acre, and for production at 3.7bn bushels, below the USDA forecasts of 45.2 bushels per acre and 3.8bn bushels respectively.

However, the consultancy is known for somewhat conservative estimates.

And investors preferred to focus on higher forecasts, such as FCStone's estimate on Monday at 46.0 bushels per acre.

November soybean futures closed down 1.2% at $10.65 ¾ a bushel.

Corn falls less fast

For corn, Informa raised its US yield forecast by 3.0 bushels per acre to 168.0 bushels per acre, again below estimates from many other observers, if above USDA expectations.

Still, with US weather improving, December futures closed down 0.5% at $3.67 ¼ a bushel, lagging soybeans in part because they have already passed their sensitive development period, pollination, meaning they have less risk premium to lose.

Furthermore, the condition of US corn did deteriorate last week, by 2 points to 73% rated good or excellent, albeit with this still representing a strong figure.

Demand is proving strong too, as Archer Daniels Midland reminded in reporting strong profits from ethanol production, and forecasting more.

Sugar retreats

Among soft commodities, raw sugar futures for October closed lower in New York, ending down 1.2% at 16.13 cents a pound, the weakest finish for a spot contract in five months.

After a fire at the Brazilian port of Santos, which initially sent prices soaring more than 5% on Monday, proved to have caused relatively little damage, investors focused on a more downbeat picture of ample world supplies.

"There has been no change in the overall fundamental outlook - physical prices are weak, spreads are widening and demand not enough to halt the slide at the moment," Sucden Financial said.

Still, Macquarie offered sugar bulls longer-term hope, seeing a current Brazilian stockbuild as likely to prove temporary.

Coffee drops

Arabica coffee for September closed down 0.6% at 189.40 cents a pound, despite the continued concerns over Brazil's harvest.

"The potential for big production losses in Brazil this year are real, and traders are starting to worry about production next year as well as some contra seasonal rains hit coffee areas in the south," said Jack Scoville at Price Futures Group.

"The rains could create premature flowering and the flowers could be aborted as it has turned dry again."

However, he also noted an increasing willingness by producers to sell at elevated prices, while some roasters appear to be waiting out the latest wave of market volatility.

Morning markets: resilient US crop condition softens prices
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