PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 10:54 GMT, Monday, 3rd Mar 2014, by Agrimoney.com
Morning markets: Wheat leads surges on Ukraine tensions

Grain prices have rallied strongly this morning, led by a 5.5% gain in Chicago wheat as tensions between Ukraine, Russia and the west have intensified.

 

"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 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 at risk

"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."

 

Flight-to-safety

Aside from the rise in grains this morning the tensions over Ukraine have begun to trigger signs of flight-to-safety across the wider markets.

 

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 month.

 

"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 slowing activity.

 

Corn follows wheat gains

Picking up on the bullish momentum of wheat the other grains have also seen a buoyant start to this week.

 

Chicago corn 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.

 

Soy lags

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.


Coffee meanwhile 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 high.