PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:52 GMT, Wednesday, 16th Apr 2014, by
Evening markets: soy stays strong. But grains, coffee tumble
How much more are investors willing to bet on the Ukraine crisis escalating?

Not much, to judge by financial market reaction on Wednesday.

Risk assets were back in demand as investors took more notice of decent Chinese economic growth, of 7.4% in the first quarter, that Ukraine tensions, with shares rising 0.7% in London and 1.6% in Frankfurt, while standing 0.8% higher on Wall Street in late deals.

Many industrial commodities had a better day of it too, with nickel rebounding to a 14-month high, and copper adding 1.2% to $6,619 a tonne in London.

EU accord tested

Indeed, in a reverse of the last session, the CRB commodities index rose, while grains struggled, in particularly wheat, which has become to a large extent a barometer of worries about Ukraine, a major producer of the crop, and part of a Black Sea region crucial for supplies.

Certainly, the prospect of European sanctions against Russia waned as many corporates, such as Germany's BASF, Italy's ENI and UK-based BP, which have interests in the country cautioned over the threat of a backlash from Moscow.

With trading this week foreshortened by the Good Friday holiday in many Western countries, many investors took the opportunity to bank profits, sending Chicago wheat for May down 2.0% to $6.88 a bushel, just above its 20-day moving average.

The better-traded July contract shed 2.0% to $6.95 ¼ a bushel, ditto.

Rain debate

There was also some talk of weather relief too, in terms of frosts this week proving less damaging for southern Plains winter wheat seedlings than had been feared, and with rain on the way to ease drought concerns.

An event forecast for the weekend "has the making of a change in longer-range weather pattern with potential for near-normal to normal rains seen in the extended outlook through mid-May", Benson Quinn Commodities said.

However, the broker acknowledged the "lack of confidence in the weather forecast", and there was certainly no easy consensus over rain relief.

Darrell Holaday at Country Futures said, for instance, that weather models "are still not generous with any rain in the western hard red winter wheat areas".

Weather service MDA, meanwhile, said that the six-to-10 day outlook was drier for central and south western areas of the Plains wheat belt, and the 11-to-15 day outlook drier in the east.

And before then, well, while parts of the southern Plains will see rains this weekend, which "will improve moisture a bit for wheat… significant reductions in drought and drop stress are not anticipated".

'Spotty winterkill'

Turning to the extent of crop damage to this week's freeze, MDA said that "some spotty winterkill is occurring on jointing wheat in Ohio", as of early today.

Indeed, "soft red winter wheat in the Ohio River Valley was exposed to temperatures in the high 20s Fahrenheit last night," CHS said.

As for hard red winter wheat, as traded in Kansas City, as opposed to soft red winter wheat traded in Chicago, "agronomists are estimating hard red winter wheat production 1% lower after suffering freeze damage", the broker added.

In a potential sign of fund involvement in today's 2% fall in Chicago soft red winter wheat, Kansas City hard red winter wheat, far less popular with speculators, lost a more modest 1.4% go $7.65 ½ a bushel for May, and 1.5% to $7.60 a bushel for July.

'Dryness continues to build'

Paris wheat for May did better still, in shedding 1.2% to E218.75 a tonne, receiving some support from growing concerns over dryness in the European Union too.

Toepfer pegged the German crop, the EU's second largest, at 23.95m tonnes, down 920,000 tonnes year on year, cautioning that recent rains had refreshed northern grain growing areas, farms further south and west were still dry.

The Toepfer estimate took some of the wind out of the sails of a 100,000-tonne upgrade, to 24.74m tonnes, in the estimate for the crop by the German farm co-operatives association.

And MDA highlighted that "dryness continues to build across north central Europe", including parts of France, Hungary, Italy and Spain as well as Germany.

While some of these areas will receive rains next week, "dryness will continue in western Germany and north eastern France", much of which has received 20% of normal rainfall or less since late February.

'Planting could explode'

Back in Chicago, there was less debate over the weather outlook for the Corn Belt, and the prospect of higher temperatures to boost corn germination prospects and encourage sowings.

"Models have continued to indicate much warmer conditions in the Corn Belt next week," Country Futures' Darrell Holaday said.

"There is a strong indication that corn planting could explode next week and that has resulted in a lack of buying in the corn."

CHS Hedging said that "favourable extended weather forecasts are limiting corn price advancements," while Benson Quinn Commodities said that "trade is looking for corn planting to jump to 40% by end of April".

'Certainly pressured corn'

The curve ball to the corn pit was on the demand side, with official data showing US ethanol production last week soaring by 43,000 barrels a day, or 4.8%, week on week to 939,000 barrels a day.

That was one of the fastest rates of growth on record, and made last week comfortably the biggest this year for US ethanol production.

Meanwhile, ethanol stocks tumbled 455,000 barrels to 15.95m barrels, rather than growing, implying demand for this extra production.

Still, any support to corn was diluted when futures in ethanol themselves tumbled, with investors apparently focused on the production rather than the stocks, with Chicago's June contract dropping 2.9% to $2.079 a gallon.

"This has certainly pressured corn," Mr Holaday said and, indeed, corn futures for May closed down 1.2% at $4.97 ½ a bushel, with the better-traded July contract ending 1.2% down at $5.03 ½ a bushel.

Contract highs in abundance

But bears proved unable to savage soybeans, which closed up 1.2% at $15.18 ¼ a bushel for May, the highest close for a spot contract in nearly nine months, and the highest finish ever for the contract itself.

The July lot gained 1.4% to $15.08 ¾ a bushel, ending above $15 a bushel for the first ever for the contact itself

The strength was evident in soymeal too, in which the May lot ended up 0.7% at a contract high of $491.00 a short ton, ditto the July contract, which finished up 1.1% at $479.80 a short ton.

While soyoil, the other major soybean processing product, finished nowhere near contract highs, it did outperform, in adding 2.0% to 43.93 cents a pound for July delivery, helped by rival palm oil, which finished up 0.8% at 2,684 a tonne in Kuala Lumpur.

Tight supplies

Soybeans are being helped in particular by the squeeze on the US balance sheet, which looks even tighter after Tuesday's data showing the US crush last month far bigger than thought.

"The soybean crush reached a record high level in March despite the low supplies and the need to sharply curtail usage," broker Jefferies Bache said.

CHS Hedging said: "The US crush pace runs well ahead of the needed pace to reach the current USDA annual estimate of 1.685bn bushels.

"A nearly unprecedented slowdown will need to be seen in the next five months [to the end of 2013-14] to resolve the US balance sheet."

'Lowering estimates'

Benson Quinn Commodities said that "private analysts are lowering estimates for US soybean ending stocks to near 100m bushels from the USDA's 135m estimate in last week's Wasde report".

And there were other support factors too, with China's economic data a tonic for bulls, given that the country is the top importer of soybeans, and a major buyer of palm oil too.

Ideas for Argentina's soybean crop are being downgraded thanks to recent heavy rains, which are seen causing crop damage, besides slowing harvest progress.

And then there is El Nino to factor in too, seen as a big threat to palm oil production, so boosting demand for soyoil.

In fact, Barclays on Wednesday flagged a brighter outlook for palm oil prices, citing El Nino and decent demand from China and India, in a note which put an "overweight" rating on shares in palm oil-to-sugar giant Wilmar International.

Sugar sweetens

Among soft commodities, raw sugar staged a rebound, closing up 2.2 at 16.92 cents a pound for New York's May contract.

At Price Futures, Jack Scoville noted that "there are worries that El Nino is starting and that it would reduce rains in India, but increase rains in Brazil," potentially slowing the 2014-15 cane harvest currently in its early stages.

But arabica coffee proved unable to pull out of its decline, adding losses of 3.2% to the last session's 6% tumble, and closing at 188.85 cents a pound for July delivery

Technical factors were again blamed, after the contact's failure to breach a level of 210 cents a pound which had been seen as a key chart point, with pre-weekend profit-taking seen as a factor too.

'Coffee price is embattled'

"From a chart perspective, the coffee price is thus embattled, which also suggests a further price decline in the short term given the substantial overhang of speculative long positions," Commerzbank said, viewing futures as likely trading at 150-200 cents a pound for now.

Still, the bank added that "it is probably coming too late to bring about any major improvement in the prospects for this year's Brazilian crop", which has been badly hurt by drought.

This means that, if downbeat estimates for Brazil's production are realised, "the price could become established at above 200 US cents due to the expected significant supply deficits".

Morning markets: US balance sheet squeeze forces soy higher
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