PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:48 GMT, Wednesday, 7th May 2014, by Agrimoney.com
PM markets: funds keep wheat steady, despite calmer Ukraine

The bull market in grains appeared to have one of its wings clipped on Wednesday, when Vladimir Putin took a more conciliatory stance towards Ukraine's elections, taking some of the heat out of regional tensions.

Mr Putin, the Russian president, termed Ukraine's presidential election on 25 May is a step "in the right direction", adding that Russia had pulled back its troops from the border.

Shares in Moscow certainly revived, adding 3.4% as measured by the Micex index, and stocks recovered to close flat in London and stand 0.6% higher in New York in late deals.

European prices drop

Still, wheat futures maintained high altitude, staying near one-year highs, in the US at least.

It was a little bit of different story in Paris, where wheat for November closed down 0.7% at E207.25 a tonne.

Having been thoroughly unimpressed by the other story boosting wheat markets, poor US weather, European investors were hardly likely to react positively to signs of calm in Ukraine, and a lower danger of disruptions to exports from a major grain shipping country.

London wheat for November fell 0.7% to £157.75 a tonne.

'Money moving into commodities'

But US contracts had support from the speculators who have, against expectations at the start of the year, renewed their passion for agricultural commodities, encouraged by the Ukraine crisis, besides the weather setbacks in the US too dry in the south, too wet in the north and Brazil, with the looming El Nino weather pattern posing the potential for further upsets.

"The key driver is money flow moving into commodities as a hedge against the effects of a full blow conflict in the Black Sea Region," Paul Georgy at broker Allendale said.

"Corn and wheat are getting the benefit as Ukraine and Russia are major exporters of these products."

Benson Quinn Commodities said: "The recent pattern indicates hedge fund types favour more ownership of commodities.

"I wouldn't discredit ideas that some hedge funds are rotating capital out of equities and into commodities."

'Rotation to ag futures'

The broker added that the "rotation to ag futures has reached the late innings.

"With the pace of corn planting increasing and the state of the US hard red winter wheat crop already in dire straits in the southern Plains, the first sign of weakening technical momentum should trigger selling from the funds and the rest of the speculative community."

But investors looked unwilling to sell too much ahead of a key US Department of Agriculture Wasde report on Friday, which will give the first full, world estimates for 2014-15 crops, besides updating old crop numbers.

"The market has taken a bit of a siesta for now," Jerry Gidel, chief feed grains analyst at Rice Dairy, told Agrimoney.com.

'Slightly drier'

There was nothing too significant in terms of improved weather for the drought-hit US southern Plains.

In fact, the Plains wheat belt forecast was "slightly drier" for Saturday, weather service MDA said, adding that already this week, "significant heat has added to yield losses to heading wheat in southern areas, although [temperature] readings should moderate beginning today".

While rains are still due for some parts of the Plains, they are likely to prove limited.

As for the Wasde, it is expected to forecast US stocks falling to 553m bushels in 2014-15, from a current figure for end-2013-14 of 583m bushels, with one analyst guessing as low as 425m bushels.

Spring vs winter

Hard red winter wheat, the type under threat from the southern Plains drought, dropped a modest 0.2% to $8.44 a bushel for July, while Chicago soft red winter wheat for July fell 0.1% to $7.37 a bushel, recovering 3 cents of its discount to its peer, which widened massively last week.

In fact, Minneapolis-traded hard red spring wheat did best, adding 0.2% to $8.06 a bushel for July, the contract's best close in nearly 10 months.

Is it also a sign that the gap between hard red spring wheat and hard red winter wheat will close, an idea Agrimoney.com reported on earlier?

Hard red spring wheat is getting support from excessive wetness, and cold, in northern states slowing sowings, and data from Saskatchewan in Canada is due tomorrow.

'Stall planting once again'

Corn, which has taken something of a lead from wheat, fared a little bit worse, but losses, at 0.7% to $5.14 a bushel for July delivery, were not extreme.

The grain is also being supported by concerns over slow sowings which, while not nearly as slow as last year, remained enough to limit the removal of risk premium, especially with rain on its way.

In the US Midwest, "the drier pattern thus far this week has allowed planting to progress very well, but the rains later this week and over the weekend will stall planting once again", MDA said.

CHS Hedging said: "The corn market is maintaining stability above $5 per bushel.

"Planting delays have concerned producers in the Northern Plains whereas the southern farmer is just a step off average pace."

Weekly ethanol data were viewed as neutral, with US production down a little, by 4,000 barrels a day to 894,000 barrels a day, but stocks lower too, by 72,000 barrels to 17.14m barrels.

'Imports from Brazil'

It was soybeans which once again fared worst among Chicago's big three, falling 0.9% to $14.46 a bushel for July delivery, undermined by continued talk of strong imports by the US, whose tight balance sheet has been a big concern.

Richard Feltes at broker RJ O'Brien noted "continued liquidation in soybeans as trade grows more confident that US soybean imports will resolve the tight old-crop supply situation".

CHS Hedging said that "imports from Brazil continue to weigh on the market", adding that there is "now talk of China auctioning off state reserves next week", as Agrimoney.com highlighted earlier.

China's imports, and the diminishing prospect thereof, are also under the spotlight thanks to the potential for the Wasde to cut the 2013-14 number from the current 69m tonnes, a downgrade many investors expect.

'More talk of cancellations'

Indeed, there is continued talk of Chinese buyers ditching import orders.

"More talk of cancellations has some of the longs coming out of the market," Allendale said.

As a further setback, Brazil's agriculture minister, although not the ministry, itself, estimated the domestic soybean crop at a lofty 89m-90m tonnes, above other estimates.

Brazil crop bureau Conab, which pegs the crop at 86.1m tonnes, will unveil fresh forecasts on Thursday.

And as further fuel for bears, there were unexpectedly high deliveries overnight against the expiring May soybean contract, of 176 lots, with 37 in soyoil and 19 in soymeal, potentially a sign that Chicago is more attractive for sellers than cash markets.

Soyoil for July dropped 0.7% to 40.83 cents a pound, and soymeal 0.5% to $474.90 a short ton, given some support by talk of a poor result from Argentina's harvest, in quality terms.

Argentina is the top exporter of both soybean processing products.

'More positive supply-side picture'

Among soft commodities, cocoa for July dropped 0.7% to £1,801 a tonne in London for July delivery, after hitting £1,794 a tonne earlier, the weakest for a nearest-but-one contract since January.

New York cocoa fell 0.7% to $2,899 a tonne, earlier hitting the lowest since February for a second-in contract, at $2,883 a tonne.

The bean continued to come under pressure from ideas that West African production will prove better than had been feared

"The fundamental situation keeps evolving towards a more positive supply-side picture - rains over West Africa in the past 2-3 weeks were significantly better than at the same time last year," Marex Spectron said earlier.

"Given how the lows have been broken, how moving averages have crossed, how speculators are steadily liquidating, how the structure is weakening, it is extremely difficult not to imagine cocoa going towards lower levels," the broker said, analysis which proved right on the day at least.

Raws vs whites

But raw sugar perked up adding 0.4% to 17.28 cents a pound for July, amid some relief that the negative technical close to the last session did not cause further damage, with investors appearing instead intent on keeping the sweetener in its recent trading range.

The contract regained its 75-day moving average, it not its 100-day moving average, on the day.

"Opinions vary between those who are increasing risk as a result of these bullish weather forecasts and those who take a more sanguine view and recall that there is still a potential surplus of sugar worldwide for this campaign" Nick Penney at Sucden Financial said.

Still, while there is "not much evidence of demand picking up in the refined product, the white sugar premium has strengthened a little in the past month".

White sugar for August actually added 0.5% to $468.70 a tonne in London, continuing to creep up its premium.

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