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Nato warning over Russian troops sends wheat prices higher

Wheat futures soared 3% as concerns over Ukraine flared up again, after Nato claimed that "well over 1,000" Russian troops have crossed the border, reviving concerns over the region's important grain exports.

Wheat for December hit $5.79 a bushel in Chicago, the highest since a spike on Ukraine concerns three weeks ago, before easing back to close at $5.71 a bushel, a gain of 1.7% on the day.

In Paris, November wheat touched a three-week high of E177.25 a tonne before retreating to close at E175.00 a tonne, up 0.9%.

The gains followed Nato's warning of a "severe escalation" in Russian military action against Ukraine, with the organisation claiming that satellite pictures present "additional evidence Russian combat soldiers equipped with heavy weapons are operating inside Ukraine".

Besides the alleged 1,000 Russian troops within Ukraine a claim that Moscow denies Nato said that a further 20,000 were massed at the border.

Petro Poroshenko, the Ukraine president, said in a televised statement that he had cancelled a planned trip to Turkey after "Russian troops entered Ukraine", also calling for emergency meetings of the UN Security Council and the EU Council of Ministers to "discuss the "deteriorating situation".

Close to port

Wheat prices have acted somewhat as a barometer for Russia-Ukraine tensions, given the region's status as a large source of competitively priced supplies, with support, like tensions, typically proving transient.

"Wheat rallies spurred by bad Russia behaviour have repeatedly sputtered," said Richard Feltes at Chicago broker RJ O'Brien.

However, this time, the market had extra support from the increasing action in south eastern Ukraine, near to Mariupol, one of the country's main ports of handling grain exports.

 Furthermore, chart factors turned helpful, with Chicago's December contract on course for what would be only its second close above its 50-day, and 40-day, moving averages in more than three months.

'Better technical support'

"Wheat markets are also showing better technical support," Minneapolis-based Benson Quinn Commodities said.

"While wheat has come well off its highs, trade above the 50-day moving average in Chicago has triggered a round of short covering in that market," with many investors putting great store in chart signals.

"The key to further upward momentum would be forcing additional short-covering by the fund community in Chicago futures," Benson Quinn said.

Hedge funds held a net short of 50,000 in Chicago wheat futures and options as of Tuesday last week, the latest data available.

Stronger export data

Furthermore, wheat futures continued to gain some support from concerns over the impact of persistent rains on the US spring wheat crop, with worries over the threat to quality, as well as in slowing harvest progress.

"Concerns about the pace of harvest progress and potential quality issues in the North American will remain a front burner issue," Benson Quinn Commodities said.

Meanwhile, there are renewed fears over dryness in Australia, with an Australian Bureau of Meteorology forecast of dry weather in the east of the country for the rest of 2014 sparking concerns of losses of up to 2.5m tonnes in central New South Wales alone.

And weekly US wheat export sales data were stronger, at 403,600 tonnes, nearly double those of the week before and in line with market expectations.

These included a particular recovery in hard red winter wheat sales to 205,000 tonnes, from net cancellations of 25,000 tonnes the week before.

Kansas City hard red winter futures for December added 1.1% to $6.44 a bushel, closing over its 40-day moving average for the first time in three months.

Corn gains

Some of the strength in wheat carried through into fellow grain corn, although the spread between the two grains widened above $2.10 a bushel at one point, up $0.13 on the day.

US weekly corn export sales were decent, at 696,000 tonnes for 2014-15, at the top end of market expectations.

However, repeated reports of strong yields from the early US harvest, in the South, and a lack of a weather threat to Midwest remained a weight on prices.

Forecasts continue to show little chance of an early frost heading into early September.

December corn ended 1.2% higher at $3.69 a bushel.

Large exports

Soybeans gained too, with talk of sudden death syndrome in the US Midwest crop, and strong export sales, offsetting some of the weight from strong yield reports from the South.

"Early soybean yields from the Delta have been impressive with some as high as 75-90 bushels per acre," said CHS Hedging.

"With harvest getting underway in Louisiana, there have been reports of 50-80 bushels per acre versus last year's state average of 48 bushels per acre."

Export sales, however, came in at 1.29m tonnes for 2014-15, more than twice expectations of many traders, and including 655,000 tonnes to China, the top importer.

China financing

That further eased jitters over sale to China, after a report earlier in the day from Shandong Changhua Food Group over an easing in a commodity financing squeeze.

"Some banks that had stopped lending to us have started to gradually resume co-operation with Changhua, allowing our commodities trading operations to return to normal," the company, a major palm oil and soybean importer, said.

Furthermore, the prospect of a long US weekend, and an extra day without being able to trade, encouraged position closing in a crop in which hedge funds have an, unusual, net short position.

November soybeans closed 0.5% higher at $10.28 a bushel.

'Premature flowering'

Among soft commodities, raw sugar managed small gains, adding 0.2% to 15.61 cents a pound for October delivery, helped by support from Commerzbank and Job Economia, which said it was "time to buy" the sweetener.

And arabica coffee for December stood up 1.0% at 200.20 cents a pound, looking for its first close in three months above 200 cents.

The rise was helped by a drop in coffee stocks, to 2.41m bags, held for delivery against New York futures, besides by continued talk of crop damage in Brazil to drought, which will affect the 2015 harvest as well as already curtailing 2014 output.

"Traders keep buying the market due to the loss reports from Brazil and drought reports from Central America," Jack Scoville at Price Futures said.

He also noted "more talk that some recent rains in Brazil created premature flowering and that these flowers could be aborted", undermining 2015 harvest prospects.

In Indonesia too, a major producer of robusta beans, "there was talk that early rains in had created some flowering that could hurt production if it turns hot and dry again," with flowering a month earlier than normal.

Still, robusta for November delivery dropped 0.4% to $2,039 a tonne in London.

Morning markets: wheat's premium over corn returns above \$2
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