There was some disagreement as to what exactly was the main driver
supporting the jump in wheat prices in the latest session.
But there was no doubt that wheat futures were taking on buyers
on Wednesday, bursting them through the $7.00-a-bushel mark for the first time
And once through that psychologically important point, well,
why stop there. The May contract hit $7.18 ½ a bushel in Chicago, a 10-month
high for a spot contract, before easing a little to close at $7.15 ¾ a bushel,
a gain of 3.4%.
That took its gains since the end of January to 29%,
There were some who are talking down the threat from the Ukraine
crisis, as tensions remained contained. Russian soldiers managed to take the
headquarters of the Ukrainian navy in Sevastopol on Wednesday without bloodshed.
Benson Quinn Commodities said that "without some type of
escalation, corn and wheat will have tough time garnering much more strength
from this issue".
At Country Futures, Darrell Holaday concurred, saying that "we
really don't think the move the last two days in wheat has much to do with Ukraine
or the Black Sea region".
'Pulls supply out of
the world market'
However, at Linn Group, Roy Huckabay flagged the knock-on
effects of the Ukraine crisis which might not be immediately apparent, such as
the potential for European Union buyers to switch grains.
"Europe has been importing a lot of Ukrainian corn. If that
slows down, the EU is going to start using more wheat instead for feeding," Mr Huckabay
Indeed, that was a dynamic this website highlighted earlier, when
reporting on bumper UK corn imports – for January, before the Ukraine turmoil
kicked off in earnest.
Chad Hart, Iowa State University associate professor of
economics said simply: "If Ukraine continues to have problems, it pulls [grain]
supply out of the world market.
"That tends to mean
higher prices for the commodities because you have less to trade."
Still, all agreed that the worsened condition of winter wheat
in the US was a major force behind the higher prices, given the poor weather
US Commodities said: "It doesn't appear the drier weather
profile is going to abate in the near future."
Country Futures' Darrell Holaday said: "The midday weather models
continue to point to a pattern change late next week, but it certainly does not
indicate any strong indication of moisture in the southern Plains," the hard
red winter wheat belt where drought fears are worst.
Indeed, there is "lots of water in the east" of the US, Mr
Huckabay said, making it "too early" to get gloomy over soft wheat, which is
grown in that area.
And there are growing concerns about dryness in eastern
Australia too, a phenomenon which, coupled with a dearth of rain in South East
Asia's palm producing districts, has the fingerprints of an El Nino weather pattern.
Mr Holaday added that "some of the surge in wheat today has
had a feel of a major export sale, but we generally feel it is weather-related
Kansas City-traded hard red winter wheat itself rose 3.3% to
$7.88 ¾ a bushel for May delivery, the best close for a spot contract in nine
Paris wheat for May rose 2.2% to E213.25 a tonne, while its
London peer gained 1.2% to £169.95 a tonne, the best close for a nearest-but-one
contract since July, and with the lot earlier having a shot at the first close over
£170 a tonne since then.
Taiwan walks away
It was surprising against that background that corn managed only a 0.3% gain to $4.87 ¾
a bushel for May - although it could be a sign, of course, that Ukraine
tensions were not behind wheat's rally.
In fact, "Chinese feed mill buyers say they have booked two
cargoes of corn from Ukraine", CHS Hedging noted.
This is, however, said to be linked to the repayment of a $3bn
loan to Kiev, whose lack of return has provoked some anger in Beijing, rather
than being a vote of confidence in Ukraine's export abilities.
As another negative, Taiwan's MFIG walked away without
purchase from a tender for 60,000 tonnes of corn for May/June shipment, saying
prices were too high.
'Not a very good
Furthermore, Emerson Nafziger at the University of Illinois downplayed
the threat of the US coldness in hurting potential for corn yields, even if it
does men delayed sowings, with temperatures too low to support germination.
"Though having low soil temperatures at this point in March
does not produce a lot of optimism that planting will start early, it is also
not a very good predictor about how the spring will go, or of what kind of
season we'll have," Mr Nafziger said.
"If we've learned anything in recent years, it's that what
happens during the summer matters much more than what happens in March and
And as an extra pressure, weekly US ethanol data - while
hugely positive for ethanol prices in seeing stocks fall close to a record low -
showed production, while higher, tending below what is needed to meet the US
Department of Agriculture forecast for corn use in making the biofuel.
'Continue to attract
Soybeans did a
little better, adding 0.9% to $14.31 ¼ a bushel for May delivery, supported by
ideas of tight supplies, with a dearth of producer selling balancing out talk
of China selling crop back to the US at a huge discount.
"Soybeans and soy products continue to attract capital on
the buy side as firm technicals and expectations of tightening US ending stocks
offer support, while producer selling has been limited," Benson Quinn Commodities
"The soybean market is borderline overbought, but appears to
have the $14.45-a-bushel mark and perhaps the previous May high of $14.60 a
bushel as upside objectives," the broker said.
"Speculative money has favoured flat price ownership, while
also adding to long positions on a July/November spread that has recovered from
last week's lows."
More dead pigs
In fact, there is some more bullish news out of China too,
in rumours of an official forecast that the country will import 5.25m tonnes of soybeans this month, above
the 3.49m tonnes which had been expected.
Not that all the China talk was positive, with talk of 131
dead pigs being pulled from a river that provides drinking water, reminiscent
of the 10,000 pigs found dead last year in the river that flows through
Shanghai and, if it means a disease outbreak, potentially lowering soymeal needs.
Still, soymeal itself gained 1.4% to $462.00 a tonne in Chicago.
Rain on its way?
Among soft commodities, the rally in arabica coffee slipped into
reverse again, amid growing hopes for rain to refresh Brazil's drought-hit plantations.
MDA Weather Services has forecast that rainfall in Brazil's
coffee-growing regions will be 200-300% above average over the next 10 days, potentially
bringing "significant relief" to trees.
On the demand side, Brazilian research institute Cepea
highlighted the potential for buyers to switch from arabica beans to robusta coffee if prices differences proved a sufficient incentive.
Arabica vs robusta
Industry figures Cepea spoke too said that if "the price gap
continues high, the demand for robusta coffee might increase, mainly from
Brazilian coffee roasters.
"Because of more attractive robusta quotes, the use of this
variety in blends tends to increase, while the use of arabica might move down.
"Some agents indicate that even the international demand for
the Brazilian robusta coffee might be favoured."
Arabica coffee for May closed down 3.1% at 185.10 cents a
pound, and is now 6.4% lower for this week so far.
Robusta beans themselves for May dropped 2.1% to $2,090 a
tonne in London for May, down a relatively small 3.9% for the week.
however, added 1.0% to 17.32 cents a pound in New York for May, given some
support by a decent recovery in copper, which some investors are looking at as
a guide to demand in China, a major buyer of the sweetener (but not coffee).