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Morning markets: some Russia troops retreat. So do grains

Vladimir Putin, the Russian president, on Tuesday returned to barracks some troops "involved in military exercises", taken as being in Crimea.

(Stop press: it was actually later revealed that the order did not cover troops sent to Ukraine.)

In easing tensions over the Ukraine crisis, that fuelled a retreat too in corn and wheat prices, which had gained heavily in the last session on concerns over what the Crimea situation could bring, in terms of limitations on exports from Russia and Ukraine, both large exporters.

Similarly, Brent crude, which hit a 2014 high on Monday, fell 1.3%.

Conversely, shares, which tumbled last time as investors sought less risky assets, recovered, adding 1.2% in London in early deals, after gains in Asia too, to the tune of 0.5% in Tokyo.

'Harsh and cold temperatures'

Not that investors did not have cause to buy wheat from another source, with data overnight showing continued deterioration in the condition of the US winter wheat crop thanks to repeated "polar vortices" and more minor freezes.

The proportion of Kanas crop rated "good" or "excellent" fell one point month on month to 34%, with Nebraska's crop rated 43% good or excellent, down three points on the reading a month ago.

Texas winter wheat was rated at 15% good or excellent, down one point on the week, and four points month on month.

"This came about as harsh and cold temperatures took a toll on the crop during February," Vanessa Tan at Phillip Futures noted.

'Bullish on US wheat'

And it may not mark the end of the downgrades.

"The storm over last weekend failed to provide enough snow as expected, thus leaving certain portions of the US Plains at risk of a cold snap," Ms Tan said.

Given that the Ukraine crisis may still potentially shift wheat buyers to the US, "with the above factors in mind, we are bullish on US wheat".

Remember that even if Ukraine, and potentially Russian, suppliers can get grains to port, easily, they may be reluctant to given the hedge that dollar-denominated crops represent against currencies which have been driven to record lows against the greenback.

"There was talk about Ukrainian producers halting sales against possible currency changes," CHS Hedging said.

'High risk undertaking'

Still, not all the analysis is quite so bullish.

"We suspect both countries will make every effort to reassure buyers that all contracts- existing and future- for grain loadings will be honoured," Richard Feltes at RJ O'Brien said.

"Control of Crimea may undergo changes but there won't be any change in need for both countries to cultivate their reputation as reliable grain suppliers."

The Ukraine turmoil "is a gift for global grain growers who are using rally to price old and new crop bushels but a high risk undertaking for flat price speculators".

Indeed, wheat for May eased 0.5% to $6.28 a bushel, still up some 4.4% for the week as of 09:30 UK time (03:30 Chicago time).

In earlier deals, the contract failed to break above its 100-day moving average, which it temporarily topped in the last session for the first time in 14 months.

Sowings begun

Corn, of which Ukraine in particular is a large exporter (18.5m tonnes expected for 2013-14, compared with 3.0m tonnes for Russia), fell too, although less so, by 0.2% to $4.69 a bushel.

Ukraine crisis or not, the US is seeing decent exports, at 1.04m tonnes for last week according to cargo inspections, and with a further 187,000 tonnes combined sold to Japan and South Korea, the US Department of Agriculture announced on Monday.

Of course, prices are still feeling pressure from the size of the last US harvest, much of which has yet to be sold.

As for the 2014 crop, Texas growers, among the first to begin seeding (although small fry in terms of the US harvest), have 8% of corn in the ground, up five points week on week, but marginally behind the average of 9%.

Soybeans vs corn

In fact, on US spring crop sowings prospects, oybean area is seen showing up strong, given the continued strength of November soybean futures to December corn futures.

"We still believe the ratio has been high enough that more soybean acres will end up getting planted, assuming the ratio holds," one US broker said.

"More bean acres in the US and a record production down in South America will relieve the ultra-tight situation we have been in and could ultimately lead to lower prices."

One factor has already been set in stone, with average prices over February setting US federal crop insurance prices at $4.62 a bushel for corn and $11.36 a bushel for soybeans, a ratio of 2.46:1, which is far more in soybeans' favour than last year.

'Flush with supply'

There is still anticipation too of Chinese soybean importers cancelling orders from the US and switching to cheaper South American supplies, now Brazil looks certain to harvest a bumper crop, if one down on initial hopes.

Furthermore, "there are reports of bean shipments having to wait to unload in China as they are flush with supply", one broker said, noting that "domestic Chinese crush margins are poor currently". 

"Will China cancel more US bean orders?  It seems almost every day we hear rumours of such but so far only 272,000 tonnes of cancellations have shown up on the daily USDA announcements. 

"Until a significant amount gets cancelled or rolled into 2014-2015 the market could hold support."

'Storage capacity full'

Benson Quinn Commodities highlighted "trade talk of negative China bean crush margins and ports in China unable to unload coming vessels with storage capacity full on record import pace".

However, there is talk of Oil World lowering its forecast for the world 2013-15 soybean harvest, although only by some 1m tonnes - more may be known later.

And there is the continued theme of inverse soybean-grain spreads being unwound or put in, meaning the oilseed and corn-wheat are tending to move in opposite directions.

For now, soybeans for May added 0.3% to $14.14 a bushel.

That was actually counter to movement in China itself, where Dalian soybeans for September, the best-traded contract, fell 0.4% to 4,453 yuan a tonne.

'Remain bearish'

But elsewhere in the oilseeds complex, Kuala Lumpur palm oil struggled, falling 0.5% to 2,792 ringgit a tonne, undermined by some bearish talk from an industry conference in the Malaysian capital.

"Several industry experts remain bearish on palm oil outlook, [saying] more-than-sufficient supplies of other vegetable oils would put a damper on palm oil price," Phillip Futures said.

These rival oils include soyoil, swollen by what is expected to be a strong harvest in Argentina, the top exporting country, and canola oil, after the record harvest of the rapeseed variant in Canada last year.

"Sufficient supplies of these alternative oilseeds could make them cheaper, thus shifting edible oil demand away from palm oil."

As another negative, lower crude oil prices imply weaker values of biodiesel, for which palm oil is a major feedstock.

Evening markets: wheat soars on Crimea fears. Coffee up too
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