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Morning markets: wheat prices extend gains. Soy reslient too

Friday began much where the last session left off, with soybeans putting in a firm finish to a difficult week, and wheat outperforming.

Not that a rise of 0.4% to $14.76 ½ a bushel in Chicago's July soybean contract as of 09:40 UK time (03:40 Chicago time) could be considered massive.

But it holds significant technical importance, with the contract in danger of falling through some key chart points, including the 20-day moving average, and an uptrend line kicking in at very roughly $14.65 a bushel.

The $14.60-a-bushel or so mark, which has provided some resistance to previous selling, is also seen as key.

'Take one day at a time'

"For now, take one day at a time," Mike Mawdsley at Market 1 advised, saying that a close for the July contract below $14.60 a bushel "would suggest a slide to the 50-day moving average, and probably quickly", with that line currently at $14.11 ½ a bushel.

At Benson Quinn Commodities, Kim Rugel said that the "market will be closely watching for the July contract to hold or violate support at Thursday's and Wednesday's lows at $14.60 ½ a bushel for end-of-week price direction.

"If support holds, fresh shorts could be seen covering heading into the weekend," meaning upward pressure on prices.

"If the market presses below $14.60 a bushel, the next support is $14.44 a bushel," a target derived from the "low end of the early-April trading range".

'China situation centre stage'

Another technical factor that could have an impact on grain prices on Friday is the expiration of May options, a feature that often tends to funnel futures towards a price level where there is a concentration of options.

That is perhaps less so with soybeans, with $14 the big level for contracts, well below current futures values.

But of course all this ignores the elephant in the room of China, whose rash of import cancellations and defaults has been a big concern to investors.

"China's import situation remains at centre stage," CHS Hedging said, especially given that many of the washed-out cargos are believed to be heading for the US.

Dalian rebound

Indeed, another brokers noted that while, like last year, the US was looking at a tight soybean balance sheet, "interior soybean basis levels are averaging below a year ago. 

"The re-routing of cargoes originally bound for China which are now heading for the US may have a larger impact on our final carryout than the US Department of Agriculture currently has projected."

But at the China fears being overdone? The country offered a large positive to markets on Friday, in that best-traded September soybean futures on the Dalian exchange closed up 1.6% at 4,439 yuan a tonne, its best finish in six weeks.

The contract has now recovered nearly 5% from an early-April low.

'Mixed feelings'

The influence from Kuala Lumpur's palm oil market was somewhat positive too, with the benchmark July contract adding 0.5% to 2,663 ringgit a tonne, after cargo surveyor SGS said that Malaysian exports rose by 3.4% month on month in the first 25 days of April.

While not a huge rise, it was a marked improvement on the 6.0% fall month on month up to April 20.

And it comes amid what Phillip Futures termed "mixed feelings" over Malaysian palm oil export prospects, as demand spurred by the upcoming Eid festival "takes on China's slowdown".

Rival vegetable oil soyoil for June stood up 0.3% at 42.97 cents a pound in Chicago.

'Distraction, deception and destabilisation'

Among the grains, wheat managed further headway, gaining 0.7% to $7.01 ½ a bushel in Chicago for July delivery.

The latest bout of Ukraine tensions shows no sign of calming down, with US Secretary of State John Kerry accusing Russia of "distraction, deception and destabilisation" in the east of the country.

The course of the Ukraine crisis is particularly important for wheat, given that the Black Sea is a huge source of competitively priced exports of the grain.

At Citigroup, Sterling Smith also noted that "weather worries are creeping back into the conversation for both the US and Western Europe", with dryness a concern in both areas – although to what extent depends very much on interpretation…

'Potential for profit-taking'

Benson Quinn Commodities said that the current southern Plains forecast "indicates rains should benefit central and eastern regions, but high temperatures and strong winds will offset some of the benefit".

The latest official US Drought Monitor showed drought spreading a little in Texas, by 1 point to 45.6% affected, but holding steady, at more elevated levels, in Kansas and Oklahoma.

Benson Quinn added that "there's potential for profit-taking after a nice move higher today.

"However, I expect the trade to carry some risk premium into the weekend given the tensions in Ukraine."

'Grown a little frothy'

Corn, meanwhile, managed to recoup early losses, standing 0.5% higher at $5.09 ¾ a bushel, amid concerns over US sowing progress.

Investors rushed to inject weather premium early in the week, after official data showed US farmers as having planted just 6% of their crop as of Sunday, well below the 14% average.

Still, brokers have scrambled to reassure that it as yet early in the sowing season.

Citigroup's Mr Smith cautioned that the market had "grown a little frothy from worries about the speed of planting.

"The heart of the planting window Is not even open yet and most of the worries are premature."

Rain makes grain…

Even from Australia, Pentag Nidera said that "given the excellent moisture the crop will be going into, and the fact that the optimal US corn planting window is still well and truly open, it's not hard to imagine a scenario where crop scouts could soon be talking of above trend line yield prospects.

"We've already heard a number of analysts suggesting a good growing season may have potential to deliver national average yields well in excess of 170 bushels an acre – an eventuality that would solve the US and global corn balance sheet issues in one fell swoop."

Pricing over the rest of the day is likely to depend on weather, and any alterations to the outlook likely to affect planting progress, for better or worse.

Cotton shrinks

Soft commodities got off to a broadly lower start, including cotton which eased 0.7% to 92.57 cents a pound for July at the end of a positive week.

Indeed, futures were rescued from profit-taking in the last session by the Drought Monitor - Texas is the top US cotton producing state – and strong American export data.

The US sold 124,100 running bales of cotton last week, "up 46%from the previous week and up noticeably from the prior four-week average", the USDA said, and including a 105,100-bale order by China, the top importer.

That was the biggest Chinese weekly purchases since January.

Coffee cools

And profit-taking was a feature in coffee too, with New York's July arabica contract shedding 1.2% to 212.30 cents a pound.

The bean has had a strong week, nonetheless, adding 4% and setting a two-year high, boosted by downgrades to crop forecasts by Volcafe and Citigroup.

A government export estimate from Vietnam, the top robusta coffee producer, on Friday showed a 99% surge in shipments this month to 220,000 tonnes (3.7m bags).

Robusta for July eased 0.5% to $2,155 a tonne.

Evening markets: wheat prices rise, with Ukraine tensions
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