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Morning markets: wheat rises on Middle East, US harvest woes

It was tricky for shares to post much in the way of gains, with concerns growing over the latest batch of Middle East unrest, this time over extremists who captured Iraqi towns such as Mosul last week.

Stocks closed down 1.1% in Tokyo and opened a touch weaker in Europe too.

But for grains and oilseeds, the week began where it left off the last one, reasonably positive, with the Middle East tension potentially a more supportive factor price-wise.  

Brian Henry at Benson Quinn Commodities noted that in the last session "there may have been a wave of generalised, macro-related buying due to increased geopolitical risk in the Middle East".

Recent years have shown a willingness by countries in the region and North Africa to stock up on grains, particularly wheat, at times of political difficulty, to ensure at least that food shortages do not add to reasons for unrest.

Jordan on Monday issued a tender for 100,000 tonnes of wheat, optional origin, and the likes of Algeria and Egypt have been in the market recently.

Big rains

As for the supply side, the US winter wheat harvest is still being disrupted by rains.

Over the last week much of Kansas, as well as Nebraska, "saw significant rains of 2-7 inches", said, equivalent to 200-600% of normal.

"Similar such rainfall amounts relative to normal be found over much of the Texas panhandle north eastern Texas the southern half of Oklahoma and large portions of Mississippi and Louisiana."

"Harvest continues to be delayed by widespread rain showers in Texas, Oklahoma and Kansas," US Wheat Associates said in a harvest report released late on Friday, adding that "between 30-40% of the Texas and Oklahoma crop has been harvested".

'Fields are being abandoned'

Furthermore, "fields are being abandoned in the many areas of these two states affected by drought".

As for what is being reaped, "reported yields have improved slightly as harvest moved northward and now generally range from 5-30 bushels per acre (0.3-2.0 tonnes per hectare)," the group, which promotes US wheat, said.

The average is seen around 19 bushels per acre (1.3 tonnes per hectare), which is hardly superb, as indeed has been expected after drought for so much of the growing season.

"Producers continue to focus on harvesting seed wheat first to insure that seed is available for next year's crop."

Still, largely drier weather is due this week, with rains in the north, and west, of the US, but rains in the south

"South of Interstate-70, it's dry and hot over most of Kansas, Oklahoma and all of Texas and the Deep South," said.

'Water deficit'

Nonetheless, as an extra support to wheat, hedge funds have got shot of their net long position in Chicago futures and options, notching up a net short position of 27,135 contracts as of Tuesday last week, at least likely limiting the extent of further short positions.

And there remain a few concerns over crops outside the US.

In France, the proportion of soft wheat rated "good" or "excellent" dropped two points week on week to 72%, albeit still a strong rating, but with Agritel noting that eastern France has for a month suffered a "water deficit".

For spring barley, the "good" or "excellent" rating dropped 4 points to 67%, but harvest is imminent.

And there is the ongoing concern over Russia too, although weather service MDA said that the Volga Valley region in focus over a dearth of rainfall will receive showers, which "will ease dryness concerns".

Wheat for July gained 0.7% to $5.90 a bushel in Chicago as of 09:30 UK time (03:30 Chicago time), with Kansas City hard red winter wheat adding 0.7% to $7.18 a bushel.

'Quiet recovery'

That was one help to fellow grain corn, which added 0.5% to $4.49 a bushel in Chicago for July delivery, although the new crop December lot managed a more modest 0.2% cent gain to $4.48 a bushel.

But there was also the support, or at least eased pressure, of hedge funds having already sold off a stack of long positions in Chicago futures and options, cutting their net long position below 150,000 contracts for the first time since February.

Corn has been "quietly" trying to recover from "oversold" conditions, Mr Henry added.

And there is the drier and hotter weather to factor in south of Interstate 70 (although some would see that more in terms of boosting corn growing prospects rather than as, at this stage, a reminder that the sensitive pollination period has yet to happen).

New crop vs old

Soybeans showed a bigger contrast between old crop and new crop, with the July contract adding 0.5% to $14.34 a bushel, while the November lot managed only a 0.5 cent gain to $12.21 a bushel.

But then, that is a reflection of the differing fundamentals for what is left of 2013-14, when limited supplies are available in the US, and next season, when stocks should be swollen by a record harvest.

For now, Jerry Gidel at Rice Dairy recommended users to "cover your July-August protein needs, basis $450 a short ton August soymeal area or below, since US protein supplies will remain extremely tight until 2014's harvest".

Soymeal for July actually added 0.6% to $470.50 a short ton in Chicago.

Soybean sowings debate

As far as 2014-15 goes, however, Informa Economics cut on Friday by 300,000 acres, to 81.78m acres, in its estimate for US soybean sowings this year went the wrong way, many observers believe.

Downgrades of 150,000 acres to the estimate for Minnesota soybean acres, and 200,000 acres in North Dakota, attracted particular scepticism, since in these two states wet weather hampered badly sowings of corn, which is earlier planted than soybeans.

Thus, corn seeding problems typically end up with some switch in area to soybeans.

Benson Quinn Commodities reckoned that Informa was "low on the bean acres", while noting others in the trade foreseeing a number as high as 82.5m acres.

Evening markets: grains hold on to end-of-week price gains
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