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Markets perform tale of 3 wheats. But sugar advances as one

If ever wheat bulls needed a reminder of the importance of backing the right variety of the grain, in the right market, Tuesday provided it.

In a twist on the Goldilocks fairy tale (OK porridge is made from a different grain, oats), US markets provided one wheat which cooled significantly, one which heated up, and another which ended pretty neutrally.

The differing performances reflected the changes in US fundamentals, with the other main factor supporting markets, the Ukraine crisis remaining alive, with the reported killing of seven Ukraine soldiers in an ambush and the escalation of Russia-US tensions into space.

Russia is to deny the US use of the International Space Station beyond 2020, in a sign of the growing deterioration in the relationship between the two countries, over the Ukraine crisis.

Softer soft wheat

Cooling off was Chicago-traded soft red winter wheat, the world benchmark, and a biscuit-making type grown mainly in the Midwest, where conditions have been relatively benign.

Official data overnight showed the proportion of winter wheat in Ohio rated "good" or "excellent" rising by 5 points to 55% in the week to Sunday, implying higher yield potential, with the crop in Illinois lifted by 3 points to 55% good or excellent.

And with 111 deliveries overnight against the expiring Chicago May wheat contract, hinting at futures being attractive for sellers, the July contract closed down 0.8% at $7.09 a bushel, a fifth successive negative close, run in which the contract has lost 4%.

The decline saw the July lot below its 20-day moving average for the first time in three weeks.

'Moisture will remain short'

However, Kansas City hard red winter wheat, a higher protein variety used in making bread and grown largely in the southern Plains, managed to hold its ground, adding 1 cent to $8.25 a bushel.

The overnight US Department of Agriculture data showed a further deterioration in the drought-pressed crop, with the proportion of winter wheat in Kansas, America's biggest wheat-growing state, seen good or excellent falling by four points to just 13%.

For Texas, the figure was 11%, down 2 points week on week.

Still, to keep prices in check, depending on which forecasters you listen too, there is hope for some rain relief through Sunday, with MDA forecasting "light showers" for parts of Nebraska, Colorado and Kanas.

The weather service added that "moisture will remain short in south western areas" of the Plains.

Sowing delays

Meanwhile, investors warmed to Minneapolis-traded hard red spring wheat futures, which closed up 0.5% at $7.90 a bushel for July delivery.

Rather than crop condition, it is actually getting the crop in the ground which is the worry here, given cool and wet conditions in its northern growing heartland in the US.

US farmers had seeded just 34% of spring wheat as of Sunday, 19 points below the average pace, and the 40% figure that investors had expected.

And weather does not look like getting more benign in the northern Plains, with MDA cautioning that the six-to-10 day outlook is actually wetter in the north eastern Plains.

Commodity Weather Group forecast rain early next week in hard red spring wheat country, after a cold week this week which will curtail soil drying.

History also tells us that Minneapolis wheat, which traded $12 a bushel over Kansas City wheat in the March 2008 heyday, has a habit of trading at a premium to its peer.

'Generally good growth conditions'

Meanwhile, Paris soft milling wheat futures for November eased 0.4% to E203.50 a tonne for November, with the contract closing below its 40-day moving average for the first time in three months, weakened by the drop in Chicago wheat, but given some relief by a softer euro.

A weaker euro improves the affordability of eurozone exports for buyers in other currencies.

European prices are also being undermined by broadly favourable prospects for the crop, with the European Commission's Mars unit on Monday forecasting an above average soft wheat yield for the EU of 5.58 tonnes per hectare.

"In general, the current prospects for European Union [crop] yields are above the five-year average and the forecast for total cereals increased compared to [a month ago] reflecting the generally good growth conditions," Mars said.

London wheat for November dropped 0.7% to £153.50 a tonne, undermined also by customs data showing a revival in imports, so boosting supplies in the country.

Prices are also being hurt by expectations of an early UK harvest, after a warm winter encouraged development.

'Emergence delayed'

Back in Chicago, corn futures rebounded 0.6% to $5.02 a bushel, helped by further evidence of demand for US supplies, with the USDA announcing the sale for export of 126,000 tonnes of the grain to South Korea during the current marketing year.

And overnight,  the USDA crop progress report showed that while US sowings had accelerated in the main Corn Belt last week, they remained slow in the northern Plains, for the same reason that wheat is not getting sown.

Plantings are especially behind in Michigan, Minnesota, North Dakota and Wisconsin, states expected to sow between them more than 18m acres of corn one-fifth of the US total but at best 31% complete with seedings (Minnesota) and at worst just 3% (North Dakota).

And what has been sown is slow to emerge, with no crop poking through in any of the four states, bar 1% in Michigan.

"The colder temperatures have emergence delayed," CHS said, adding that the four states "will need a drier/warmer climate within the next several weeks to keep all intended corn acres".

'Trade is leaning positive'

In fact, the prospect of more cold and rain is spurring ideas of farmers switching to soybeans.

Insurance dates, an indication of the end of the seeding window, for delayed hard red spring wheat plantings kick in in North Dakota and Minnesota from May 31-June 5, while for soybeans the deadline is not reached until June 10, Richard Feltes at RJ O'Brien noted.

With corn prevent plant dates hit in the last week of this month, "it looks like northern Plains soybean area will exceed expectations", Mr Feltes said.

Still, investors found reason to buy the oilseed, with a price rise on the Dalian exchange overnight on talk that China's auction tomorrow of 300,000 tonnes of soybeans from state reserves will be at prices higher than the market had expected.

Traders also anticipated industry data on the US soybean processing volumes which are expected to show a decent number.

"Trade is leaning positive on the NOPA soybean crush report tomorrow given excellent margins and ample soy crusher ownership," Mr Feltes said.

Soybeans for July closed up 1.3% at $14.83 a bushel.

Sugar sweetens

In New York, raw sugar for July added 2.9% to 17.80 cents a pound, lifted by a slow start to the Brazilian Centre South crushing season, and a change by Platts Kingsman to forecasting a small sugar deficit in 2014-15, starting in October, rather than a 2m-tonne surplus.

Meanwhile, the International Sugar Organization forecast a potential return of the sugar cycle to a "deficit phase", while Brazil giant Copersucar chipped in late with a forecast of a world production shortfall of 2m-3m tonnes for 2014-15, starting in October.

London white sugar ended up 2.6% at $485.80 a tonne for August delivery.

However, arabica coffee for July dropped 1.2 to 186.95 cents a pound, following a relatively upbeat report from the US Department of Agriculture attaché in Brasilia on Brazilian production prospects.

Still, the estimate noted considerable uncertainty over crop prospects too, until the harvest is in the hand.

"It would appear that the USDA is caught in the same quandary as the rest of us concerns Brazilian production," said Sterling Smith at Citigroup, who has a less upbeat forecast for Brazilian output.

"If upside momentum develops a strong rally cannot be ruled out."

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