The Ukraine crisis took a turn for the worse as three
pro-Russian separatists were killed in an attack on a military base.
That was not so helpful to share markets, which proved mixed
in Asia, and opened a little weaker in Europe.
But it was enough to revive futures in wheat, whose performance has become closely linked to events in
Ukraine, a major grains exporter. (Including through the port at Mariupol,
where the latest attack took place.)
And, in particular, Chicago soft red winter wheat - the
speculators' favourite - rose, adding 0.9% to $6.94 a bushel for May as of 10:00
UK time (04:00 Chicago time), as investors returned to injecting risk premium, as
opposed to the profit-taking of the last session.
The better-traded July contract returned above $7 a bushel,
adding 0.8% to $7.00 ¾ a bushel.
'Concerns in place'
It was notable that Kansas City-traded hard red winter
wheat, less sensitive to Ukraine factors, added a more modest 0.6% for July, to
$7.65 a bushel, having shed less in the last session too.
For hard red winter wheat, the US weather is also a more
major concern, and the dryness afflicting the southern Plains, hard red winter
wheat country, although this week's cold snap has affected soft red winter
wheat state of Ohio too.
"Concerns are still in place over conditions and quality of
the hard red winter wheat and soft red winter wheat crops after the fairly cold
temperatures the past couple of days," CHS Hedging said.
That said, "recent weather maps suggest better moisture is
on the way now through early next week" for the southern Plains.
But how much rain will fall?
While "multiple weather systems will move through the
southern Plains over the course of the next 10 days, advertised rain totals and
coverage are not impressive", said Brian Henry at Benson Quinn Commodities, if
adding that "they do offer some hope".
At RJ O'Brien, Richard Feltes said: "Forecasted weekend
rains across US hard red winter wheat belt will halt further deterioration in
already-low wheat ratings.
"But of greater
importance are follow up rains in late April/May as water usage rates
accelerate during heading/pollination stages."
Whatever, investors going short on wheat might think twice.
The jump in wheat prices since late January, "underscores
the risks associated with shorting a commodity caught in the cross-hairs of a below-normal
US Plains rainfall pattern and of escalating geo-political risk in the third
largest grain export hub", Mr Feltes said.
"We don't know how the Moscow/Kiev confrontation will play
out, but we do know that top-pickers and shorts are vulnerable to potentially
explosive events on the ground."
As an extra support, there are some signs of demand for
wheat even at these prices, with Japan buying 136,000 tonnes of milling wheat
at tender, after Jordan's purchase of 150,000 tonnes earlier in the week.
The strength helped a revival in corn too, which gained 0.6% to $5.00 ¼ a bushel for May delivery,
and 0.4% to $5.05 ½ a bushel for July.
The grain suffered in the last session from a warmer weather
outlook for the US Midwest, potentially speeding up plantings significantly.
However, what was perhaps surprising was the lack of
response to strong US ethanol data, with production soaring at one of its
fastest paces on record last week, by 4.8% week on week to 939,000 barrels per
Inventories actually declined, implying appetite for all that
ethanol (and the corn it is made from) and more.
"Production margins remain favourable, the processor is well
covered on ownership so assuming outbound rail movement continues to improve
strong, grind rates should continue to be seen as the market looks to build up
stocks ahead of the summer driving season," Benson Quinn Commodities said.
However, another broker reckoned that "even with strong
weekly ethanol numbers, final demand for ethanol is not likely to change
anytime soon given the blending wall", which limits the volume of the biofuel the
US can take.
The grains in fact had trouble restoring a lead over soybeans, which added 0.7% to $15.28 ¾ a
bushel for May delivery, and 0.6% to $15.18 ¼ a bushel for July, continuing to
feel support from the tightness of the US balance sheet.
US supplies are looking even tighter after surprisingly
strong US soybean processing data earlier in the week.
Furthermore, decent Chinese economic data on Wednesday eased
some of the concerns over demand from the top soybean importing country.
"The US Department of Agriculture's attempt to lower crush to make
US balance sheet balance at pipeline 135m bushels [in terms of end 2013-14 US
stocks] is looking pretty futile today," Benson Quinn Commodities said.
That said, the soybean rally does face resistance from more
than just profit-taking , with South American growers selling into it.
"Brazilian and Argentine producers have rewarded the rally
with active selling," said Benson Quinn noting that this was being reflected in
a "sharply lower basis market".
At Country Futures, Darrell Holaday noted that a year ago,
also a time of supply concern on soybeans, basis levels were $0.50 a bushel strong
in the central Midwest.
"This was the signal that the commercials were long and
would stay long in the delivery process and demand delivery.
"That is not the situation this year," Mr Holaday said, saying
that this is a "signal that the length is in the funds" in soybeans.
That in turn is "an indication that if the market breaks
down technically, it will move lower quickly in the face of fund liquidation."
Movement later may be largely influenced by weekly US export
sales, expected for corn to come in at 550,000-850,000 tonnes for old crop, and
0-150,000 tonnes for new.
For wheat, sales for this season are expected at 50,000-250,000
tonnes, and for 2014-15 at 225,000-375,000 tonnes.
And for soybeans, traders expect potentially net
cancellations of 100,000 tonnes for this season, which would help resolve the
tightness in the US balance sheet, but with the potential for positive net sales of 100,000 tonnes.
For 2014-15, sales are expected at 175,000-350,000 tonnes.
Profit-taking ahead of a long weekend for the US, with tomorrow
the Good Friday holiday, could prove a factor too.