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Ukraine attack on Russia forces sends wheat prices higher

Grain prices put in a strong finish to the week, with corn setting course for a fifth successive positive session, as an attack by Ukrainian troops on a Russian armoured column escalated regional tensions.

Ukraine said its military had partially destroyed an armoured column crossing from Russia, although it is unknown whether the attack was on official Russian forces, or pro-Russian separatists.

The news sent wheat futures for September soaring 3.5% to $5.56 a bushel in Chicago at one point, before easing to end at $5.51 a bushel, a gain of 2.6%.

Paris wheat for November closed up 1.8% at E173.75 a tonne.

With both Russia and Ukraine big exporters of competitively priced wheat, futures in the grain have been particularly sensitive to changes in regional tensions.

Futures in corn, in which Ukraine is a big exporter, rose 1.6% at one point to $3.79 a bushel for December delivery before easing back to finish at $3.77 a bushel, a gain of 0.9%.

Opposing dynamics

The price gains were "pretty much all down to Ukraine-Russian tensions", Rich Nelson, chief strategist at Allendale, the Chicago broker, told, with the particular gains in wheat futures a classic signal of such a move.

The boost from the political concerns contrasted with the "bearish factor" of growing estimates for wheat production from both countries, he said, although Black Earth Farming separately on Friday highlighted concerns of low protein in the Russian crop.

Richard Warburton, chief executive of the Russian farm operator, said that protein levels in the national crop have been about 1 percentage point lower "than prior years", a dynamic reflected in the group's own harvest results too.

At Iowa-based US Commodities, Don Roose said that "increased tensions along the Russia-Ukraine border are getting attention".

Drier outlook

Mr Roose added that a change in the US weather outlook was underpinning prices of row crops, with the latest Midwest forecasts running rainfall "south of the dry areas" where some moisture is needed.

Weather service MDA noted a "slightly drier" tone to the Midwest outlook for Saturday and Monday.

World Weather said that "portions of north eastern Iowa, south eastern Minnesota and in a region from central Illinois to central Indiana will not see much relieving rainfall for a while," although "some rain is expected as scattered showers".

"Greater rainfall may occur next week ahead of a ridge of high pressure that is expected to evolve."

Planting data

There was a mixed reception to data from the Farm Service Agency, responsible for handing insurance claims for farmers for lost crops, showing that US farmers reported that they were prevented by poor conditions from planting on 1.54m acres of corn, with a further 137,837 acres down as "failed".

This compared with 83.32m corn acres planted (included failed ones), although this data relate only to sowings in a government support programme and do not include some, largely big, operations not enrolled.

For soybeans, the overall sown average was pegged at 79.25m acres, with 35,626 acres failed, and 827,131 down as prevent plant.

"Could this mean that the USDA [planting] numbers are 2m acres high on corn and 1m acres high on soybeans," CHS Hedging asked?

'Looks constructive'

On corn, Allendale's Rich Nelson said that while some investors were viewing the data as "important", in his opinion the data were "in line with previous years".

In fact, the corn prevent plant number was "a little lower than typical".

However, for soybeans, Anne Frick at New York-based Jefferies took a more bullish take, likening the data with last year, which resulted in an acreage downgrade.

"On its face the report looks constructive for soybeans, on the idea that the ratio of FSA to planted acreage is low and similar to last year's when the January plantings were revised downward," she said.

Strong crush

Less disputed as a fundamental fillip was data showing a surprise rise in the US soybean crush last month, to 119.62m bushels, from 118.718m bushels processed in June.

Investors had forecast a drop to 115.823m bushels.

"It is unusual to see the figure beat estimates by 4m bushels," Mr Nelson said, foreseeing a likely upgrade by the US Department of Agriculture to its estimate for the US soybean crush for 2014-15.

However, while soybeans for September were 0.6% higher at $11.02 a bushel, the best-traded November contract closed 0.4% lower at $10.52 a bushel, with expectations remaining of a huge US crop this year.

Such forecasts are expected to be underlined by a ProFarmer tour of the Midwest next week, when Allendale also begins a survey which is expected to report on September 3.

"You would think" the prospect of ProFarmer crop tour, and evidence of large yields, "would be seen as bearish", Don Roose at US Commodities said.

Sugar shorts covered

Among soft commodities, raw sugar managed a gain of 0.01 cents to close at 15.92 cents a pound for October delivery, as the fall of futures below 16 cents a pound caused some nerves among holders of short positions that further losses might not be so forthcoming.

"The action appears to be little more than short-covering, as the market is currently well supplied," Citigroup's Sterling Smith said.

There were some nerves too over the weekly regulatory data due later which, if they show a large further large shift short by hedge funds in their positioning on the sweetener, might raise questions over whether the appetite for such bets is nearly spent, and could provoke short-covering.

'Better fund participation'

Gains in arabica coffee were significantly more impressive, after cautions over run-downs in Brazilian inventories, including from leading commentator Carlos Brando, as highlighted by

Arabica coffee for September jumped 2.5% to 188.75 cents a pound, retaking its 100-day moving average.

Does this herald a strong start to prices for next week?

"A strong weekly close would be seen as very bullish, and should inspire some better fund participation," Citigroup's Sterling Smith said before the finish.

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