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Morning markets: grains dip despite Crimea vote. Sugar too

So, Crimea voted to join Russia.

And the European Union is to discuss further sanctions against Russia, with the US also warning Moscow of "costs" to its actions in sponsoring the poll.

"There remains significant uncertainty about the future of Crimea/Ukraine, and the market is likely to keep pricing in the tail risk of a further escalation of the conflict until signs of a diplomatic solution emerge," Barclays said.

But as of yet, there is an air of calm in the markets, evident in small declines in Asian shares, which fell 0.3% in Hong Kong and 0.4% in Tokyo, while rising 1.0% in Shanghai on news that China's central bank had freed up foreign exchange limits somewhat on the remninbi.

The People's Bank of China doubled the renminbi's trading band to 2% on the weekend an amount it has actually moved over the last two months against the dollar.

European shares opened with small gains.

Risk premium factor

On agricultural commodity markets, there has been some expectation that the Crimea vote would at least keep wheat prices elevated today, with Ukraine being a major exporter of the grain, and of corn too.

As Vanessa Tan at Phillip Futures said, the Crimea vote "could result in further sanctions imposed on Russia".

"This would translate to higher risk premium for wheat prices as it could further disrupt wheat shipments from the Black Sea region, putting wheat shipments from a major exporting region of wheat at risk," and switching demand to the likes of Europe and Russia.

At Commonwealth Bank of Australia, Luke Mathews said: "Although a vote by Crimeans to join Russia was expected, the risk of further escalation in tensions means wheat market will likely retain a substantial risk premia."

'Possibility of $3-4-a-bushel corn'

But even retaining its risk premium was tricky for wheat, with Chicago's May lot down 0.3% at $6.85 a bushel as of 09:50 UK time (04:50 Chicago time).

And corn, of which Ukraine is actually a more important exporter, dropped 1.2% to $4.81 a bushel.

"No immediate political reaction from Ukraine could mean lower trade," Benson Quinn Commodities forecast.

Besides the generally calm market mood, investors were hardly encouraged to extend their long positions in the grains by confirmation over the extent of ground on this score that has already been taken.

Managed money, a proxy for speculators, turned net long in Chicago wheat futures and options in the week to last Tuesday for the first time since December 2012, taking a net long position of 10,500 contracts.

In Chicago corn, managed money extended its net long position above 200,000 contracts, also for the first time since December 2012.

There is still another 200,000 contracts and more to go before the corn net long would touch its record high (of 429,189 contracts). But is this so likely in times when the US has had a record harvest, looks set for another one and South America's harvest is in train too?

In fact, CHS Hedging clocked "some renewed chatter about the possibility of $3-4-a-bushel cash corn becoming more of an everyday occurrence in the near future as the market focuses on supply, not demand".

'Dryness continues to plague the region'

Then there is the weather to factor in, and the prospect of continued dryness in the Plains wheat belt.

"Dryness continues to plague the region especially in central and south western crop areas," weather service MDA said.

"A few rain and snow showers (mostly rain) will favour Nebraska, eastern Texas, and eastern Oklahoma."

However, precipitation amounts through Friday will be "0.10-0.50 inches with 20% total coverage".

'Rain needed'

That is offering some support to wheat, whatever the Crimea situation.

"Forecasts for rain for the hard red winter wheat areas of the US remain void of anything meaningful again. Rain will be needed as this wheat begins to break dormancy," CHS Hedging said.

For corn, the weather situation is a little different, with dryness not such an issue in its Midwest growing heartland, but cold indeed a factor in terms of soil temperature, with seedlings requiring 54 degrees Fahrenheit (figures vary) to germinate.

In fact, "the forecast has trended colder in the western Midwest" too, MDA said,

Still, there appear to be signs of sowings progress in the south east, an early planting region of the US.

'Improve harvest progress'

Nor could soybeans manage much headway, easing 0.5% to $13.81 a bushel for May.

In fact, this week is set to bring rain to some parts of southern Brazil where dryness has been an issue, although is it now too late? MDA flagged that the rain "will produce harvest delays in Rio Grande do Sul and Parana".

That said, next week "drier weather in Parana and Rio Grande do Sul will improve harvest progress", the weather service added.

But if the South America weather signals were mixed, the talk of China, the top soybean importer, remained firmly negative.

'Prices are heavy'

CHS highlighted that "continued chatter about Chinese soybean cargo cancellations seem to hold more water now".

At Phillip Futures, Vanessa Tan said: "We can expect China's demand for soybeans to lower on the current bird flu outbreak which would curb demand for soybeans as feed."

"Weekly export sales of US old-crop soybeans fell below expectations last week, further emphasising weakening export demand for US soybeans," she added.

CBA's Luke Mathews said that "soybean prices are heavy in response to concerns about Chinese soybean demand and Chinese defaults on US and Brazilian soybean cargoes".

Palm drops

Futures on China's Dalian exchange hardly helped by falling 0.4% to 4,351 remninbi a tonne for the best-traded September soybean contract.

Soymeal for September tumbled 1.0% to 3,209 remninbi a tonne.

Nor, elsewhere in the oilseeds complex , was Kuala Lumpur palm oil in top form, after Intertek and Societe Generale de Surveillance estimated Malaysian palm exports falling 21% in the first half of March, compared with the first half of February.

Kuala Lumpur palm oil for June dropped 1.1% to 2,742 ringgit a tonne.

Coffee belt weather outlook

Gains were hardly the status quo in soft commodities either, with some rains at the weekend reaching Minas Gerais Brazil's top coffee-growing state, where drought is a big issue as well as Sao Paulo, the main cane-growing state.

That said, "all of central and Eastern Brazil  - Goias, Minas Gerais  Bahia - will stay completely dry over the next five day," said, adding that "temperature will continue to run above and much above normal in these areas".

And while rainfall does look on the cards for the weekend onwards, marching up from southern Brazil, "the rains will have lost a lot of their intensity" by the time they reach Minas "and the coverage which will be closer to 1-2 inches", the weather service said.

Bad month

Arabica coffee for May fell 1.6% to 195.25 cents a pound in New York.

And raw sugar dropped 0.6% to 17.14 cents a pound, in what could be a seasonal decline?

"Prices now appear set to follow their typical seasonal sell off in March, April and May," CBA;s Luke Mathews said, noting that prices have fallen in March "for each of the past seven years, with an average losing margin of 13%.

"Values have also declined in five of the past seven Aprils, and five of the past seven Mays."

Brazil cane industry group Unica will later release cane processing data for the second half of February, which could be more interesting than usual (given that it is low season) given talk of mills starting crushing again before the usual April ramp up.

Evening markets: wheat regains poise. But coffee, sugar drop
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