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PM markets: Russia fears lift wheat. Brazil woes help coffee

One of the main agricultural commodity losers of the last session, wheat, turned into one of the biggest winners this time, as grain market selling focused on soybeans.

In part, fresh forecasts of European Union rain, after a dry spell heading to the weekend, helped, in reviving concerns over the quality of the harvest from the top wheat producer, which was meant to have taken the title of top exporter in 2014-15 from the US too.

Darrell Holaday at US broker Country Futures flagged "some rain creeping back into the European forecast, which could delay harvest again", more importantly raising the prospect of further downgrades of milling wheat to feed.

This when Germany's DBV producers' group highlighted the importance of dry weather for a domestic crop, which has become increasingly important for EU fortunes overall.

In Paris, wheat for November added 0.3% to E175.50 a tonne, after earlier hitting a fresh four-year low, for a spot contract, of E174.25 a tonne.

"Concerns about the quality of the EU crop remain in focus as frequent rain events delay harvest and cause sprout damage in a few areas," Benson Quinn Commodities said.

Export news

However, Chicago contracts also got some support from export business, with Nigeria buying 175,500 tonnes of US wheat for the current season, and a further 30,000 for 2015-16.

And while Russia scooped a clean sweep at the latest wheat tender by Gasc, that may not be quite the negative for other origins as it appeared.

US wheat was the cheapest, excluding shipping.

And traders may be accelerating sales of Russian wheat ahead of the enactment of European and US sanctions, billed as the toughest against Russia since the end of the cold war,

The measures include a bar on state-owned banks, including Agricultural Bank, from issuing shares or bonds in the West, which has raised ideas of difficulties in financing Russian trade deals.

'Fired up over sanctions'

At Linn Group, Roy Huckabay said that the wheat market "is fired up over the sanctions against Russia".

CHS Hedging said: "Sanctions could make exporting their wheat harder. Sanctions make it hard for the Russian Ag Bank to be involved in any international trade.

Short term, "this could also encourage traders to liquidate their positions in Russian wheat and sell that wheat before the sanctions take effect".

'Buying opportunity'

In Chicago, soft red winter wheat for September closed up 1.4% at $5.27 a bushel.

Kansas City hard red winter wheat for September ended up a more modest 0.9% at $6.16 a bushel, lowering its premium, as a higher protein wheat, below $0.90 a bushel despite the quality problems in rival shipper the EU.

The spread in "this area does look like a buying opportunity", said Sterling Smith at Citigroup.

As an extra boost to this argument, most of the sale to Nigeria was of hard red winter wheat, and there is some talk of poor sowings of the grain in Argentina, a major wheat source for Brazil, a big hard wheat customer.

'Better rain potential'

Soybeans, however, had continued benign US weather to deal with, as the crop builds in its sensitive pod-setting period.

"The models continue to suggest that the north west flow will move to more of a zonal flow next week," Country Futures' Darrell Holaday said.

"This will lead to slightly warmer temperatures in the middle part of the country but also increase moisture."

Benson Quinn Commodities said: "Forecasts continue to offer better rain potential in western and north western regions of the Corn Belt into next week.

"Additionally, rains are also expected to impact eastern regions and could offer benefit to southern regions of key corn and soybean producing areas into the end of next week."

'$1m rains'

Linn Group's Roy Huckabay said that rains forecast for late Sunday appeared crucial.

"We are forecasting for pretty good rains from Wyoming to the Atlantic seaboard," useful when crops have been showing some, small, signs of requiring moisture.

"These are $1m rains for beans and corn," he told, adding that they were likely to determine the direction of markets early next week, depending on how they turned out.

Soybean futures closed down 1.2% at $10.81 a bushel.

Ethanol data

As for corn, it managed small gains, adding 0.5 cents to $3.71 a bushel for December, helped by the strength in wheat, but also by data showing another bumper week for US ethanol output (even if producers could be profiting more if the distillers' grains market was stronger).

Output, at 954,000 barrels a day last week, was down 5,000 barrels a day on the previous week, but still the fifth best result ever.

"Weekly ethanol production was solid. You could certainly make a case that corn used for ethanol for the current crop year will be increased 15m bushels in the USDA's August Wasde report numbers, Mr Holaday said.

A caution by Ukraine's Hydromet weather forecasting centre of a potential drop of 6%, to 29m tonnes, in the country's corn harvest, thanks to conflict, was not actually so supportive, given that UkrAgroConsult on Tuesday pegged the crop at 27.0m tonnes an upgrade of 1.5m tonnes.

Coffee gains

Among soft commodities, arabica coffee had another decent data, adding 1.0% to 182.50 cents a pound for in New York for September delivery, its best close in two months.

The contract also touched its 75-day moving average for the first time since May, but failed to break through it.

Prices are being supported by increasing confidence in ideas that the early-year drought really did cause crop damage, an observation that some early talk had questioned.

"The reports from the ground are showing a remarkable consistency of beans being small and malformed, and with a greater number of beans needed to fill the bag," Citigroup's Sterling Smith said.

'Deformed, smaller and lighter'

Cooxupe, Brazil's biggest coffee co-operative, on Tuesday pegged its output at 4.1m bags, down from a pre-drought forecast of 6m bags.

"The appearance of the beans is worse, they're deformed, and smaller and lighter," said Carlos Paulino da Costa, the Cooxupe president.

Coffee exporter Terra Forte this evening, after the market closed, cut its forecast for Brazilian output to 45.8m bags, from a February estimate of 47.4m bags.

'Near-term sugar glut'

New York raw sugar managed a gain of just 0.1 cents to 16.63 cents a pound for October delivery.

But that represented something of a victory for bulls after the contract earlier touched a five-month low of 16.52 cents a pound.

"The stats/technical indicators are now all showing buy signals, but at the moment they are falling on deaf ears from the trade/physical players as we continue to hear about a near-term sugar glut," Thomas Kujawa, co-head of the softs desk at Sucden Financial said earlier.

The decreased chance of an El Nino, as highlighted by New Britain Palm Oil, was also a negative, in being linked to rains which would slow the Brazilian cane harvest, and dryness to set back Indian production.

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