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Russia-Ukraine tensions send wheat prices soaring - again

Wheat futures put in a strong finish to the week, soaring 3% at one point, as Moscow-Kiev tensions revived again, after Russia, without consent, sent a humanitarian aid convoy into eastern Ukraine.

Soft red winter wheat for September touched $5.62 a bushel in Chicago, crossing its 50-day moving average for the first time in three months, before easing back to $5.59  a bushel, a gain of 2.7%, with 10 minutes' trading to go.

Paris wheat for November closed 1.3% higher at E173.75 a tonne, ending above its 20-day moving average for only the second time in three months.

The gains followed a fresh rise in Russia-Ukraine tensions to which wheat markets have proven particularly sensitive, with both country's major exporters of the grain.

'Direct invasion'

A week after an attack by Ukraine troops on a Russian column which had crossed the border, the cause of the unrest this time was the unauthorised entry of a Russian humanitarian convoy into Ukraine.

The convoy's move into Ukraine, without the consent of Kiev and the involvement of the International Committee of the Red Cross, was condemned by Nato and the European Commission, while being termed by Valentyn Nalyvaichenko, head of Ukraine's SBU state security service, as "a direct invasion".

And in grain markets, as after last Friday's hostilities, injected risk premium into prices to reflect the threat of export disruptions.

"The market is demonstrating strength again this Friday off of uncertainty out of Russia/Ukraine," Darrell Holaday at US broker Country Futures said.

'Quality and quantity concerns'

Other brokers highlighted the support to prices too from the concerns of a poor quality European Union crop, with Strategie Grains' estimate last week that only 59% of the harvest would make milling grade, down from 71% last year, being re-echoed around the market.

"We also had the Canadian crop estimate yesterday which was less than expected, and there are forecasts for rain in the northern US, which will further delay the spring wheat harvest," Don Roose, president at broker US Commodities, said.

"Rainfalls back in the northwest have not been so favourable to the spring wheat crop and are raising quality and possibly quantity concerns for the US and Canadian spring wheat crop," Benson Quinn Commodities said.

"Rains delay maturation of the crop with localised flooding raising concern some pockets may not get harvested."

Feed vs milling

Such fears were viewed as encouraging short-covering, with a caution by US Wheat Associates over unusually high levels of vomitoxin in US soft red winter wheat also a potential cause of a squeeze on quality supplies.

Vomitoxin is a toxic residue, which can render wheat unfit even for feed, left over from fungal infections encouraged by damp conditions.

Spring wheat for September added 2.4% to $6.30 a bushel in Minneapolis, supported by the northern US harvest slowdown.

However, in London, feed wheat added a more modest 1.2% to £122.25 a tonne for November delivery, with weaker supplies of milling wheat meaning more choice for livestock rations.

'On fire'

As has been the pattern with rallies on Ukraine-Russia concerns, corn got a lift too, adding 1.0% to $3.72 a bushel for December delivery.

The grain also received support from an estimate by China's CNGOIC crop bureau that drought had cost the country some 3.5m tonnes of corn - small beer when compared with its last crop estimate of 222.1m tonnes, but seen as potentially opening the door to bigger loss figures.

But soybeans outperformed again, lifted by the strong US cash market, as crushers faced with tight supplies of the oilseed attempt to keep pipelines full, in the face of strong demand for soymeal.

"September soybean futures are on fire," Mr Roose said, noting too that expiry of the contract is close, a process which can encourage price volatility as investors quit positions.

Soaring prices

Richard Feltes at RJ O'Brien talked of "history-making record old crop soybean basis" as crushers attempt to lure out the last remaining supplies from the 2013 harvest.

Soybean crushers are "down to a week or less of inventory, as hand-to-mouth end users scramble to cover September needs", with soymeal demand being encouraged high margins in pork and poultry sectors.

The September soybean contract soared 2.8% to $11.68 a bushel, helping the new crop November lot gain 0.7% to $10.45 a bushel.

Soymeal itself soared 5.9% to $438.10 a short ton for September, pulling the December lot up 1.9% to $353.20 a short ton.

Coffee cools

Among soft commodities, arabica coffee eased despite some fresh concerns over the flowering of Brazilian trees (ahead of the 2015 harvest) which should be peaking next month.

In recent weeks, unusual rains have been a concern in encouraging premature blossoms, which are likely to abort, besides at risk of getting entangled in harvesters in areas which have not finished reaping the 2014 crop.

Now, irregular rains are in the forecast, according to Somar, a factor which may "impair the fixation of the blossom", Brazil's Conselho Nacional do Café producers' said.

Arabica coffee for December dropped 1.2% to 187.35 cents a pound.

'More than enough sugar'

However, raw sugar dropped even further, by 2.2% to 15.64 cents a pound for October, largely as a technical reaction after the contract failed to break back above the 16 cents-a-pound mark for long, viewed as a sign of weak buying pressure.

Jack Scoville at Price Futures Group also noted that talk of a drop in Brazilian production expected soon, as drought damage causes an early finish to the cane harvest, is being countered by ideas of large world inventories.

There is "also talk that there will be more than enough sugar around the world market to keep users supplied even if there is a short crop next year", he said.

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