Grain prices have rallied strongly this morning, led by a
5.5% gain in Chicago wheat as tensions between Ukraine, Russia and the west
"Mounting unrest between Ukraine and Russia is supporting
global grain prices," suggests Luke Mathews at Commonwealth Bank of Australia.
May futures have traded as high as $6.35 ½ a bushel in
electronic trade so far today, building on Fridays strong close.
Wheat prices have been supported as Russian military
forces continue to strengthen their grip on the Crimean peninsula, leading some
to question grain supplies from Black seas ports such as Sevastopol.
Black Sea region
"Wheat prices could be supported by unrest between Ukraine
and Russia which put grain exports from the Black Sea region at risk," said
analysts at Phillip Futures.
"The importance of the Black Sea region to global grain
markets should not be understated," suggests Mathews of Commonwealth Bank of
Australia, adding, combined wheat exports from Russia and Ukraine are expected
to total 26.5m tonnes in the current year, equating to "17% of world trade".
Ukraine's interim government has accused Russia of having
declared war, and has ordered the mobilisation of its armed forces
Trigon Agri last week downplayed the risk to agriculture
from Ukraine's crisis, saying it would probably herald a "better business
environment". "It is too early
to forecast the longer-term impact of the fast evolving events," said Joakim
Helenius, the Trigon Agri chairman. "But the strong probability is that it
will lead to a better business environment than the one we have had to operate
in during recent years."
Aside from the rise in grains this morning the tensions
over Ukraine have begun to trigger signs of flight-to-safety across the wider
Gold – often seen
as a safe-haven in time of duress - stood up 1.6% at the time of writing having
traded to a four-month best if $1,350 an ounce overnight.
The yield on the US 10-year Treasury note was some 1.1%
lower while 'safe-haven' currencies such as the Swiss franc were also in a firmer
mood early Monday.
By contrast equity market stood mostly in the red in
early trade with Asian indices mostly lower.
The Hang Seng Index stood down 1.5% near the close with
the Japanese Nikkei down a similar 1.3%.
Sentiment in Asia was also soured by reports North Korean
had carried out two short-range missiles tests off its eastern coast, while
economic data from China showed manufacturing activity slowed further last
"While some of the weakness can be attributed to
Chinese New Year festival effects, other indicators also point to a
weaker-than-expected growth profile," said ANZ Research.
The Markit/HSBC manufacturing Purchasing Managers' Index shrank
to a seven-month low of 48.5 in February, from January's 49.5.
Official PMI released over the weekend also indicated
Corn follows wheat
Picking up on the bullish momentum of wheat the other
grains have also seen a buoyant start to this week.
futures for May delivery stood up almost 3% at the time of writing, at their
strongest levels since early September.
Ukraine is of course a big exporter of corn as well as
wheat, in fact a more important one.
Dryness in Brazil remains another factor supporting corn
prices, which have been bolstered by increase bullish fund exposure.
Fridays' Commitments of Traders showed concerns over the
impact of Brazil's drought on crop production has spurred hedge funds to a
month of bullish positioning exceeded only once in history, raising ideas of
price volatility to come.
The net long held by managed
money players, a proxy for speculators, increased a further 42,264 contracts in
the week to last Tuesday, to total 87,516 contracts, the largest net long
exposure since early June, according to our records.
Soybeans, while firmer,
up 0.9% for the May contract at the time of writing, continue to lag.
The outlook for
soybeans remains questionable, not least the talk of poor crushing margins in
China, as the dent to chicken demand from bird flu sends the country's poultry
industry into retreat.
"There has also
been chatter that Chinese meal demand has dropped as a result of bird flu
outbreaks, pushing crush margins into negative territory," Anne Frick at
Jefferies Bache said, "supporting ideas that purchases of [US soybeans]
will have to be cancelled to keep inbound supplies at manageable levels".
Commitments of Traders
figures Friday showed the net long position held by managed money players
increased a net 7,504 contracts to total 202,996 contracts.
While this marks the largest
net long since September 2012, the larger degree of short covering amongst
speculative players would suggest a less bearish than overly bullish outlook.
Softs start mixed
Further signs of
profit taking have been in the softs market so far, follow the end-of-month related
selling which emerged Friday.
Raw sugar for May stood
down 0.8% at 17.52 cents a pound in electronic trade.
Cocoa futures were also relatively soft despite expectations of a second successive year of world production deficit by the International Cocoa Organization.
remained supported by signs of a "renewed drying trend".
Arabica coffee for May was up a further 0.6% at 181.60 cents a pound, a fresh 16-month