PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:33 GMT, Tuesday, 15th Apr 2014, by Agrimoney.com
Ukraine action sends wheat prices soaring. But coffee drops

Wheat prices soared for a second successive day, returning above $7 a bushel in Chicago and closing in Paris at their highest in nearly a year, as Ukraine action against pro-Russian separatists, raising the risk of regional hostilities.

Wheat in Chicago soared 3.4% to $7.01 a bushel for May delivery, with the better-traded July contract soaring 3.3% to $7.09 a bushel.

In Paris, wheat for May 3.4% to E221.25 a tonne, the best close for a spot contract in 11 months.

The gains followed the announcement by Ukraine's acting president, Olexander Turchynov, of "anti-terrorist operation" against pro-Russian demonstrators who had occupied a range of government properties in the far east of Ukraine.

Russian response

The military action, which Mr Turchynov said had already retaken the airport at Kramatorsk, raised concerns of a reaction from Moscow which has used language akin to that used before invading Crimea, warning of its readiness to protect the Russian community.

Moscow has already said that it is "deeply concerned" by reports of casualties in the operations, while telling Ban Ki-Moon, United Nations secretary general, that it expects a "clear condemnation" from the organisation "and the international community of these anti-constitutional actions".

Dmitry Medvedev, the Russian prime minister, claimed that Ukraine was close to "civil war".

Market impacts

The impact of the increased tensions was broadly negative to share prices, which lost 0.6% in London, 0.9% in Paris and 1.8% in Frankfurt, although New York's Dow Jones Industrial Average index showed small gains in late deals.

Prices of many commodities fell too, pressed also by concerns over China's economy, with nickel falling 3.7% at one point, albeit after a strong run, and copper losing 1.9% to $6,540 a tonne in London.

But declines on the CRB commodities index were limited to 0.6%, in part thanks to the strong performance of wheat futures, which have proven a particularly close, and positively correlated, gauge of concerns over the Ukraine crisis.

Darrell Holaday at Country Futures said: "News broke that the Ukraine military had moved against locations in eastern Ukraine that had been taken over by pro-Russian forces.

"Wheat went from unchanged to as much as 20 cents a bushel higher."

'More promising weather outlook'

In fact, the May contract ended only 1 cent from its day high, and nearly 30 cents above its intraday low, reached earlier amid ideas of rains for the drought-hit southern Plains hard red winter wheat area.

The forecast for the next five days "looks more promising" for growers, "with nearly 75% of the belt slated for 0.25-1.0 inch rains from systems on Thursday and this weekend", said Richard Feltes at RJ O'Brien.

And while the region received cold weather overnight, and is due for more, there are doubts as to its impact.

Damage assessments

"A quick look at temperatures in Kansas and Oklahoma showed a mix of temperatures from the mid- 20s Fahrenheit to low 30s," Benson Quinn Commodities said.

"Some of the lower postings could burn back some vegetation, but I doubt the bulk of this crop is far enough advanced to suffer serious problems."

At Martell Crop Projections, Gail Martell said: "For wheat that was very advanced with jointing there would be serious damage.

"However, due to persistently cold weather this spring, freeze damage is not likely to be severe in Kansas," the top US wheat growing state, "where crop development is significantly delayed."

Weather, ethanol setbacks

The weather outlook turned more benign for corn plantings too, one reason for the grain's relatively weak gains on Tuesday, closing just 0.2% higher at $5.03 a bushel in Chicago for May delivery.

"The lack of buying in corn is because the window is opening to plant US corn and forecasts are pointing to warmer temperatures," Country Futures' Darrell Holaday said.

"There are still showers and events in the forecast, but temperatures are solidly warmer."

Data overnight showed US plantings just 3% complete as of Sunday, half the proportion usually done by now, thanks largely to cold weather, which is preventing a warm-up in soil temperatures, besides by excess moisture in some eastern areas.

"The extended weather outlook is more favourable for field work and growth," CHS Hedging said.

RJ O'Brien's Richard Feltes said that the "bulk of  the Midwest looks open for 10 days, along with warming temperatures early next week through Friday".

As an extra setback too, ethanol futures for May tumbled 3.3% to $2.265 a gallon in Chicago, reducing margins for corn ethanol plants.

 

But soybeans added 1.7% to $15.01 a bushel for May delivery, the first close above $15 a bushel for a spot contract in nine months, and 1.6% to $14.87 a bushel for July, helped by a surprisingly strong US crush figure.

The NOPA industry group said that US processors crushed 153.84m bushels of soybeans last month, up 8.6% month on month, a far bigger rise than the 3.2% increase to 146.1m bushels expected by traders.

The figure countered concerns over the threat of Chinese defaults on import orders of soybeans, provoking ideas that markets were not doing enough to ration supplies of the oilseed, which are set to end 2013-14 at their thinnest in at least 50 years.

Biodiesel use

Sure, the NOPA data were not all bullish for oilseeds, with US soyoil stocks last month pegged at 2.02bn pounds, above expectations and the 1.89bn pounds in February.

But there is hope for use of the biodiesel by biofuels plants, with data from the Environmental Protection Agency showing biomass based biodiesel output at 134.8m gallons last month, up 5.6m gallons year on year.

"Based on the EPA series we think soyoil usage for [biodiesel] may be up 66% in the October-March period from a year earlier," New York broker Jefferies Bache said.

Soyoil futures for July closed up 1.4% at 43.05 cents a pound in Chicago.

The soy complex also received support from concerns over the impact of inundations on the Argentine crop.

"Recent heavy rains/flooding in Argentina may lead to a production decrease of 1m-3m tonnes," CHS Hedging said, noting that the "US Department of Agriculture is currently at 54m tonnes, while other guesses range as low as 52m tonnes".

Coffee plunges

Among soft commodities, raw sugar for July gained 0.9% to 17.47 cents a pound, helped by talk that India may fall short of its target of 2.0m tonnes in exports in 2013-14.

Exports, for which deals of some 1.4m tonnes have been struck, "will be somewhere around 1.8m tonnes, lower than our expectation of at least 2m tonnes for this year", the Indian Sugar Mill Association said, adding that there had been no orders sealed for two weeks.

But arabica coffee tumbled by 6.0% to 195.05 cents a pound for July delivery, the most for a nearest-but-one contract since 2010, as concerns that prices may struggle for more gains, with harvest now beginning, encouraged profit-taking.

Sucden Financial noted earlier that while futures had, in recent sessions, struggled to overcome resistance "around the recent high of 210 cents a pound".

The relative strength index, a key momentum indicators, was "unable to break into new territory above the upper signal line which suggest that the rally may be overbought and we could see selling pressure dominate in the coming sessions".

Robusta vs arabica

The bean was further undermined by a fall in robusta coffee prices in the last session, even as arabica futures jumped 1.9%, in a rise attributed to concerns over the Brazilian drought against a backdrop of weak producer selling.

London-traded robusta coffee for July this time edged down 0.3% to $2,128 a tonne.

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