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PM markets: ag prices rise as investors inject Putin premium

Weather isn't the only risk for agricultural commodity markets.

Investors received on Wednesday a reminder of the power of political intrigue to lift prices, by promoting market dislocation and boosting the willingness of buyers to pay up for available supplies.

And not just from the former Soviet Union, where Vladimir Putin's latest decrees proved a particular support to prices.

Darrell Holaday at broker Country Futures noted that there "have been some rumours of Argentina cutting off additional corn export licenses.

"That has not been confirmed, but has provided some buying in the corn market."

'Crop ratings will improve'

Corn for December actually closed up 1.9% at 3.74 ¼ a bushel in Chicago, climbing back above its 10-day moving average, and getting close to its 20-day moving average too.

And this despite the usual reassurance over US weather.

"At the risk of sounding like a broken record, current weather forecasts continue to remain favourable for precipitation into the last half of the week, along with moderate temperatures," CHS Hedging said.

Already there is an expectation that US "crop ratings will improve Monday, following the rains", with Monday when the US Department of Agriculture unveils weekly crop ratings.

And US ethanol production tumbled last week, down 52,000 barrels a day at 902,000 barrels a day, meaning less corn consumption.

Still, there was the consolation for bulls of a drop of 327,000 barrels to 18.26m barrels in US ethanol inventories, indicating demand for the biofuel.

There is also a growing appreciation that low corn prices will provoke some production response, likely first evident in South America, where plantings start next month for the crop harvested in August.

Russian ban

However, the main event was the decision by Mr Putin, the Russian president, to issue a decree banning or limiting "certain kinds of agricultural produce and raw materials and food products originating in countries which have decided to impose sanctions in relation to Russian persons or entities or joined such a decision".

That means countries including Australia, Canada, the EU states, Japan and the US, which export largely meat, dairy products and fruit to Russia.

That said, it was wheat, of which Russia is a major exporter, which saw the biggest upswing, of 2.8% to $5.66 ½ a bushel in Chicago for September delivery, closing above its 40-day moving average for the first time since mid-May.

It also represented the contract's sixth successive positive close, the first such run since April, and one during which it has gained more than 9%.

It was also the best finish in a month.

Meat vs wheat

While the scope of the ban in practice is yet to be revealed, the market received a large clue what it would mean earlier in the day, when Russia revealed it was to ramp up dairy and meat imports from Brazil.

And the sharp-eyed may have noted a story from Monday of Russia handing out meat export permits to five Brazilian companies - Mataboi, Frigostrela, Marfrig and Agra for beef, and Cotriji for pork.

But it was wheat which moved as it has become a proxy for former Soviet Union tensions.

Does Russia's move herald fresh action against Ukraine? Will Western powers pressurise importers to source grain from origins other than Russia?

Will buyers increasingly prefer to avoid the risk of dealing in the region?

'Wheat quality problems'

Furthermore, there is the continued fuss over poor wheat quality in the European Union and Ukraine, although reports in the latter in particular are contradictory.

"I hear more talk about Ukraine wheat quality problems," Richard Feltes at RJ O'Brien said, "although cash sources report 62% of wheat harvest so far is milling quality—about normal".

Commerzbank said: "The quality of the crop has suffered from rainfall and the financial straits suffered by farmers, translating into inadequate pest control and a resulting increase in pests."

 Furthermore, Commodity Weather Group has said that Ukraine was "bone dry" over the last two weeks, ie devoid of the rains which, in encouraging sprouting, prompt quality downgrades.

A succession of Ukraine companies have reported decent grain yields, but none mentioned quality concerns.

In Paris, wheat for November closed up 2.0% at E178.25 a tonne, ending above its 20-day moving average for the first time in nigh on three months.

'Significant rain event'

The buying extended to soybeans too, as the round of risk aversion encouraged short-covering in the oilseed too.

Chicago's November contact ended up 1.3% at $10.80 a bushel.

The US weather alone is hardly threatening, with Citigroup's Sterling Smith noting that "there will be significant rain event today and tonight across the western Corn Belt".

Darrell Holaday said that the midday run of the GFS weather model "was generally unchanged but maybe a hint drier. But that has been the recent trend as they flip flop back and forth".

'Primary concern'

Soft commodities climbed too, again with Russia's political moves hardly hurting, in encouraging closure of short positions amid rising political tensions.

Raw sugar for October managed a recovery after hitting 16.06 cents a pound earlier, its lowest for five months.

Bargain hunting helped the contract end up 1.2% at 16.32 cents a pound.

"Demand is now a primary concern as Ramadan is over and demand should start to increase as North Africa and the Middle East start to restock," Jack Scoville at Price Futures Group said, if noting that buying had appeared "slow to develop".

'Severely affected'

Arabica coffee managed one of its up days too, adding 0.8% to 190.8 cent a pound amid continued concerns over Brazil's harvest.

"The main reason for the international price fluctuation are still uncertainties regarding the real volume of the Brazilian crop which has been harvested and was severely affected by the dry weather at the beginning of this year," Brazilian research institute Cepea said.

"Besides, there are fears about the produced coffee beans in this upcoming season, which can also be affected by the dry weather."

Cotton added 1.0% to 63.74 cents a pound in New York for December delivery, managing to put together what is now looking a half decent rebound from a contract low of 62.02 cents a pound reached on Friday.

A decline in US crop condition data released on Monday curtailed growing hopes for the harvest, while the low price of cotton relative to polyester has lifted demand hopes.

Morning markets: wheat futures extend rally. Can it last?
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