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Morning markets: Ukraine woes support wheat price revival

Grains headed reasonably resilient into a long US weekend/month- end/ first notice day for September contracts, although whether they can stay that way afterwards…

For wheat, there remains good cause for investors to steer shy of heavy selling, with the Russia-Ukraine tensions remaining heightened.

Nato officials are holding an emergency meeting to discuss the crisis in eastern Ukraine, where pro-Russian separatists are trying to capture the strategic port of Mariupol, on the Azov Sea.

And US President Barack Obama blamed Russia for the escalation, if stopping short of terming its activity in Ukraine an invasion.

"There is no doubt that this is not a home-grown, indigenous uprising in eastern Ukraine," he said.

"The separatists are trained by Russia, they are armed by Russia, they are funded by Russia."

'Risk premium is being added back'

With Russia and Ukraine both major exporters of competitively-priced wheat, the wheat market has been something of a barometer of regional tensions.

"Supplies of wheat in the world are ample, but risk premium is being added back into futures prices as tensions in Ukraine escalate," CHS Hedging said, adding that "the West is still reluctant to call the situation a war, but things are moving in that direction".

Chicago soft red winter wheat, the world benchmark, added 0.6% to $5.75 a bushel for December as of 09:45 UK time (03:45 Chicago time), cementing its place above its 50-day moving average, which it closed over in the last session for the first time in three months.

Kansas City hard red winter wheat for December was 0.4% higher at $6.47 a bushel, holding its place above its 40-day moving average.

And Minneapolis hard red spring wheat, the type under threat from a wet US harvest, gained 0.5% to $6.35 ¾ a bushel, just below its 40-day moving average.

Calendar factor

For row crops, however, there remains plenty of bearish talk, with some suggesting that it is only the calendar that is preventing a fresh lurch lower.

After all, month-end is often associated with position closing which, given the extent of short positions in soybeans and wheat especially, might prove positive for prices.

Furthermore, the long weekend means an extra day without being able to trade, at a time of year when weather remains crucial, with the risk of a frost the last likely major setback to ideas of mega US crops.

In fact, the outlook is benign.

"Weather shows no threats of an early end to the growing season," said Brian Henry at Benson Quinn Commodities.

Baize forecast

Indeed, after the weekend, will markets be subjected to forces suggested by a bearish crescendo?

Among downbeat recent statements are one from respected commentator John Baize that soybean prices may fall to $8.50 a bushel, with rail transport problems adding to the pressure on values from a strong harvest – which he forecast coming in at a yield of 48 bushels per acre.

(The US Department of Agriculture has a figure of 45.4 bushels per acre.)

"We'd have big exports off the West Coast but we don't have rail capacity sufficient to move all the cargo," he said.

Prices rise – for now

At broker RJ O'Brien, Richard Feltes said that "US soybean ratings are the highest since 1992, late August/early Sept weather is ideal, there is no sign as yet of early frost and farmers are reporting great filling on above average pod set.

"Bottom line- evidence is mounting that end-2014-15 US soybean stocks may be closer to 600m bushels than 500m bushels, which suggests another $0.50-0.75-a-bushel minimum downside on November futures."

In fact, the November contract added 0.3% to $10.31 ¾ a bushel, failing, so far, to set a contract low for a third successive session.

EU corn import estimates

Corn couldn't quite muster the same strength, lacking the hefty fund net short position which would mean that position covering drove prices higher.

The December contract dropped 0.3% to $3.68 ¼ a bushel.

Among negative talk for the grain, besides expectations of a huge US harvest, is the idea that the European Union will never import the 11.0m tonnes of corn that USDA forecasts suggest, given the bloc's poor quality wheat crop providing an ample alternative source of feed.

The rain which has hurt wheat quality has boosted yield prospects for the EU's own corn harvest too.

"Analysts are increasingly questioning the USDA's EU corn import forecast," Mr Feltes said.

"Large EU feed wheat supplies suggest EU corn imports closer to 5m-7m tonnes which would trigger the EU's largest corn supplier [ie Ukraine] to aggressively price corn into traditional US corn export markets."

That is, of course, assuming no disaster in Ukraine.

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