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Morning markets: grain prices rise on Ukraine, weather fears

Monday had enough on the newswires to give markets a soft start, with a poor reading on a monthly measure of the health of China's factory sector.

HSBC's "flash" purchasing managers' index (PMI) for March indicated that the country's manufacturing sector slowed for a third successive month, falling to an index reading of 48.1, below forecasts of 48.7 and the 48.5 figure for February.

"Weakness is broadly based with domestic demand softening further," said Qu Hongbin, economist at HSBC.

At Singapore broker Phillip Futures, Vanessa Tan said that figure, "severely short" of expectations, "reflects a worsening contraction in China's manufacturing sector, in particular the small- and medium-sized enterprises.

"We expect the continued worries regarding the world's top importer of soybeans to linger over the market and dampen sentiment for the week ahead."

'Favourable rain'

Furthermore, there are still some concerns over Ukraine, with a warning from Nato to Russian troops massing on the border.

And another negative for wheat market was rainfall in eastern Australia, where dryness ahead of the sowings period for winter grains had raised concerns not just for the planting window but the whole growing season, with east coast drought a symptom of the El Nino weather pattern.

"Favourable rain fell across much of north New South Wales over the weekend, of 5mm-30m, taking the weekly rainfall totals to 30mm-40mm in many locations," said Luke Mathews at Commonwealth Bank of Australia.

"Soaking follow-up rains, of 25mm-100mm, are forecast for most of New South Wales and Queensland this week.  If realised, winter crop seeding prospects will continue to improve for much of eastern Australia."

'Relieve tree stress'

As an extra sign that El Nino may not be a threat for now at least, dryness usually associated with the weather pattern has eased in palm oil-producing areas of South East Asia too,

"More rains after earlier droughts will relieve tree stress, helping palm production to recover," Phillip Futures said.

"Expectation of output expansion has caused palm oil prices to face some downward pressure."

And palm oil itself put in a weak performance, easing 0.7% to 2,704 ringgit a tonne as of 09:45 UK time (04:45 Chicago time), off a low of 2,698 ringgit a tonne earlier which was the weakest in more than a month.

'Weather supportive'

But other markets managed a stronger performance, with shares faring OK in Asian markets, if a touch lower in Europe in early deals, and corn, soybeans and wheat getting off to strong starts in Chicago.

It helps that El Nino is not all negative for crop production, and therefore positive for prices, with the weather pattern being deemed supportive for the US row crop harvest.

"If El Nino develops early this summer, central US weather tends to be wet and mild which sets up bearish new crop outlook," Kim Rugel at Benson Quinn Commodities said.

However, "till then, cold temperatures and a late spring are supportive" for prices, in speaking of late plantings and a poor start for the crop, although the summer weather is deemed more important for yields.

'Moisture stress'

In fact, the US weather outlook has some positive aspects, with MDA saying that the "forecast has trended warmer in the central Plains and Midwest", helpful in terms of getting frozen ground thawed.

But the forecast has some negatives too.

"The precipitation outlook is drier in the southern Midwest," MDA said, adding that "moisture shortages will continue" in this area.

In the southern and central Plains, "drier weather will cause moisture stress on wheat as spring growth resumes", while in the western Delta, "below-normal precipitation in the western Mississippi Delta will cause moisture to decline even further".

Commodity Weather Group has forecast a low chance of rains in the south western Plains, major US hard red winter wheat country, for the next two weeks.

Ukraine jitters

As an extra boost to wheat, there are signs that the Ukraine crisis is having an impact on Russian supplies, with the weakness of the rouble prompted by the turmoil encouraging farmers to hoard crops rather than sell, as already seen in Ukraine (and in Argentina, where growers view soybeans as a hedge against a softening peso).

"Farmers continue to limit sales despite their increasing need for working capital ahead of spring sowing," said SovEcon, the Moscow-based analysis group noting a rise of $10 a tonne to $293 a tonne in the export price of 11.5%-protein wheat last week.

"The conflict between Russia and Ukraine is also adding pressure on the rouble."


SovEcon also highlighted concerns over exports from grain terminals in Crimea, with a capacity of 4m-4.5m tonnes a year, and over Mariupol and Berdyansk ports in eastern Ukraine.

Ships heading to these ports, in the Azov Sea, must pass through the Kerch Strait between the Russia mainland and Crimea.

Prices rise

Wheat for May gained 1.3% to $7.02 a bushel in Chicago.

It was 2.0% higher at $7.58 a bushel in Minneapolis, which trades spring wheat, which could face a tricky sowing season, given the prospect of cold ground in the northern US and large amounts of snow to melt and cause flooding.

Corn was 1.4% up at $4.85 a bushel, climbing back above its 10-day moving average on the continuous chart.

'Export sales pace rather strong'

Corn has also been helped by ideas of strong demand for US shipments, with Egypt buying 340,000 tonnes on Friday the icing on the cake of a strong export pace revealed from other data.

"Our export sales pace has remained rather strong for corn and probably makes up for the expected decline in feed/residual from the current lofty US Department of Agriculture demand estimates," one US broker said.

Furthermore, the grain was supported by data late on Friday showing a faster-than-expected rise in the number of cattle placed on US feedlots last month, by 15% year on year. The market had forecast a rise of 9%.

"A negative cattle on feed report [for cattle futures] should mean more corn used," CHS Hedging said.

Appreciating meal

It also implies more soymeal used too, with the protein feed ingredient gaining 1.9% to $464.50 a short ton in Chicago for May delivery.

It was a help that the September contract on China's Dalian exchange gained, if only by 1 yuan to 3,329 yuan a tonne, but easing some of the concerns over reports of collapsing crush margins in the country and mega supplies of soybeans backing up.

Indeed, there was a meeting this weekend of Chinese soybean processors, to discuss revising terms on import pricings, although has yet to discover any results of the session.

Soybeans themselves for May rose 1.3% to $14.26 a bushel in Chicago.

Brazil rains

Soft commodities, however, had a more negative start, with cane and coffee showing parts of Brazil receiving rains over the weekend.

MDA noted "scattered showers" this weekend in states including Sao Paulo, the top cane growing state, and in the south part of Minas Gerais, the top coffee grower.

Sao Paulo in particular looks set for further rainfall.

Raw sugar futures for May fell 0.3% to 16.78 cents a pound in New York, where arabica coffee futures for May dropped 0.9% to 169.70 cents a pound.

"Subdued demand, evidenced by a further slowing in Chinese sugar imports, is weighing on global sugar prices," CBA's Luke Mathews said.

Contrary cotton

Cotton futures for May gained, matching a contract high of 93.75 cents a pound earlier, despite news that China is to lower to 17,250 yuan a tonne, from 18,000 yuan a tonne, the price of the fibre sold from state reserves.

And this when China's cotton imports so far this year are already running 36% lower.

"With local officials moving away from their domestic stockpile policy, it is unlikely that imports will pick up noticeably over the remainder of the season," Mr Mathews said.

The May lot was 0.3% up at 93.55 cents a pound.

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