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Evening markets: funds, ethanol talk, reboots grain rally

Grain futures departed from the script on Tuesday, rebounding strongly from early lows even as fears unwound over the Ukraine turmoil that has raised concerns over corn and wheat supplies.

Assets which slumped in the last session on jitters over Russia's deployment of troops to Crimea, in southern Ukraine, recovered this time as Moscow sounded a less hostile note.

Vladimir Putin, the Russian president, said that "the tense situation in the Crimea, associated with the possible use of the armed forces, just dissipated", taken as a step back from potential confrontation.

Shares bounced 1.7% in London and 2.5% in Frankfurt and Paris, standing 1.4% up on Wall Street in late deals.

Prices jump

So grains - which soared in the last session on concerns of what tensions might mean to grain exports from Ukraine, a big shipper of wheat and corn, and Russia, and large supplier of wheat should in theory have declined.

While keeping to the script earlier on, and showing reasonable losses, they lost the plot later in the day to close with substantial gains.

For wheat, which closed up 1.9% at $6.43 a bushel in Chicago for May, this meant a finish at a the highest in approaching three months, and above the contract's 100-day moving average for the first time in 14 months.

For corn, which for May rocketed 2.9% at $4.84 a bushel, it meant the best close in five months and the first finish above its 200-day moving average in 14 months.

Mandate revision?

Indeed, technical buying was part of the reason for the price rises, with corn's rally also taking it right to a Fibonacci point, and the 62% retracement level from its August high.

But there were some fundamental reasons for strength too, one being the deteriorating condition of the US winter wheat crop, as highlighted in data overnight, particularly in the drought hit southern Plains, and with the potential for further downgrades to come.

For corn, there are continued rumours of the Environmental Protection Agency being poised to release revised estimates for the US ethanol mandate, still indicating a cut in the level which needs to be blended into gasoline, but not to the originally proposed range of 12.7-13.2bn gallons.

"Talk circulated about the EPA and the ethanol mandate possibly being higher than previously indicated," US Commodities said.

Still, it has to be marked that prices have reached levels attracting grower sales.

"Large farmer selling was reported yesterday when price targets were hit," CHS Hedging said, noting that open interest on corn "was up over 18,700 contracts on yesterday's rally".

'Tight cash market'

This time soybeans gained too, although they continued to lag, in closing up 1.0% at $14.23 a bushel for May delivery.

Several explanations were given for the rise, beyond the mere pull upwards from grains.

"The strength in the soybean complex is still generally explained by the continued strength in the Midwest cash soymeal values," Darrell Holaday at Country Futures said.

"This continues to create very good soybean crush margins in a tight cash market and that is why we see futures bounce on all price breaks."

Still, in Chicago, soymeal itself for May closed down 0.2% at $449.70 a short ton, with soyoil the product with attitude, up 3.1% at 43.71 cents a pound for May, closing above its 200-day moving average for the first time in 13 months.

Besides some concerns over vegetable oil supplies, given dryness in parts of South East Asian palm oil country, "soyoil prices have continued to advance off their key reversal set at the end of January", Anne Frick at Jefferies Bache said.


Furthermore, Argentina, the main soyoil exporter, saw its soybean crop downgraded by 1m tonnes to 53m tonnes, while Brazil's crop attracted fresh estimate cuts too.

Oil World dropped its forecast to 84m tonnes, implying a rise of a relatively modest 2.5m tonnes year on year on its estimates (if still setting a record), although Informa's downgrade was less severe, by 900,000 tonnes to 88.8m tonnes.

Michael Cordonnier, the respected crop scout, overnight cut his estimate to 87m tonnes.

'Problems continue to mount'

And as an extra bonus for bulls, another day went past without evidence of cancellations by Chinese buyers, the top importers, of orders of US soybeans, in favour of cheaper Brazilian offers.

"The soybean complex continues to make gains on tight stocks and no news of export cancellations," CHS said.

Still, Country Futures' Darrell Holaday said that the "problems in China continue to mount as the soybean crush margins continue to deteriorate.

"There are strong indications that China has to delay a large amount of Brazilian soybeans that are to be shipped in the next 60 days into July or August, or later."

Softer softs

Among soft commodities, arabica coffee proved less resilient, tumbling 3.9% to 185.15 cents a pound for May delivery, undermined by data showing a 40% surge, year on year, in Colombia's coffee production last month, to 874,000 bags.

Exports from the second-ranked arabica producer were 36% up at 976,000 bags, all boding well for offsetting at least some of the production losses in Brazil to drought, and easing blenders' fears over the extent they will need to pay up for supplies.

Colombia's output is in the grips of a structural recovery, as trees planted during a programme to introduce rust-resistant varieties gain maturity.

Raw sugar, which has also been lifted by Brazil drought concerns, eased 0.3% to 17.74 cents a pound for May delivery.

Morning markets: some Russia troops retreat. So do grains
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