Weather isn't the only risk for agricultural commodity
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
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.
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
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
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
Will buyers increasingly prefer to avoid the risk of dealing
in the region?
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."
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
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
The buying extended to soybeans
too, as the round of risk aversion encouraged short-covering in the oilseed
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".
Soft commodities climbed too, again with Russia's political
moves hardly hurting, in encouraging closure of short positions amid rising
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".
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.