There have been two main engines driving the strength in wheat prices – the poor prospects for
the US hard red winter wheat crop, and Ukraine tensions.
And both were ticking over ominously on Monday, driving
wheat futures to one-year highs in early deals.
For many markets, a soft Chinese economic reading provided a
bit of a dampener to sentiment.
The final reading for HSBC's monthly survey on Chinese
manufacturing conditions fell to 48.1 for April, down from a "flash" estimate
of 48.3 two weeks ago, and even further below the 50.0 neutral level.
0.2% lower in Tokyo, while Hong Kong stocks were 1.2% lower.
Palm oil, of
which China is a major importer, stood 0.3% lower at 2,584 ringgit a tonne in Kuala
Lumpur, little helped by an upwards revision by Strategie Grains to its
forecast for European Union production of rival vegetable oil rapeseed oil.
The forecast for 2013-14 was nudged 90,000 tonnes higher to 9.5m
tonnes, if still a figure below the 9.6m tonnes expected for this season.
Ukraine tensions heat
However, grain markets gained support from the mounting
hostilities between Ukrainian forces and pro-Russian separatists, which have
spread to Odessa in the south west - an important port city for grain exports –
besides mounting in the east.
The Odessa dispute in particular questions the comfort that
grain importers have had up to now that Ukraine tensions have at least not
Furthermore, the rising death toll from the conflict
threatens military intervention from Russia, and the prospect of broader
regional trade disruptions for a Black Sea area which is a huge supplier of
competitively priced wheat, and corn.
Separatists "are getting weapons from someone", Mike
Mawdsley at broker Market 1 said, adding that "this keeps a potential civil
war/world involvement on traders' minds".
Agritel noted that the Ukraine grain export pace "has slowed
down and loadings have been cut into half since mid-April," with less than 200,000
tonnes of corn exported during last week".
"However, even if the end of the campaign is close, wheat
activity remains important, and 175 000 tonnes were exported during the last
'Dry weather prevailed'
Wheat also had support from the poor growing weather for the
hard red winter wheat crop in the US southern Plains, where a dry weekend is
set to be followed by high temperatures this week, potentially hitting 100
degrees Fahrenheit in some areas.
Weather service MDA noted that "dry weather prevailed over
the weekend" in the Plains wheat belt.
And, while some parts of Kansas, Nebraska and Oklahoma are
slated for rains this week, coverage will be modest, at 0.25%, and "little
relief is expected in south western areas, maintaining stress on the wheat crop".
At Phillip Futures, Vanessa Tan said: "There are forecasts
of Kansas, Texas and Oklahoma experiencing hot temperatures over the next few
days and we see weather-related concerns being apparent in the support to
Chicago wheat prices during Asian trading today."
Prices got an extra boost from the purchase by Saudi Arabia
of 475,000 tonne of hard wheat and 115,000 tonnes of soft wheat, showing demand
even at current world price levels.
The soft wheat was priced from $316.25-332.00 a tonne,
c&f, with the hard wheat at $326.00-345.00 a tonne c&f, with origins
unstated, but from a list of Australia, the EU, and North and South America.
On the markets, Kansas City hard red winter wheat (the type
threatened by drought) for July added 1.7% to $8.36 a bushel as of 09:15 UK time
(03:15 Chicago time), earlier hitting a 15-month high, for a nearest-but-one
contract, of $8.43 a bushel.
Chicago soft red winter wheat gained 1.9% to $7.29 ¼ a
bushel, outperforming in percentage terms but in dollar terms seeing its
discount to its Kansas City peer widen a further 1 cent.
Earlier, the contact touched $7.40 ½ a bushel, matching its
highest since February last year.
'Heavier rains expected'
The rise was, this time, enough to support corn prices too, with ideas of strong planting
progress taking a small dent from expectations of rain this week outside the
northern Midwest, where dampness had already been expected.
"Rains later this week will slow corn and soybean planting, especially in western
areas," MDA said
"Heavier rains are expected in western areas [of the
Midwest] from Thursday, with showers favouring central areas on Friday."
Corn futures for July added 0.4% to $5.01 ½ a bushel,
retaking the psychologically important $5.00-a-bushel mark, while new crop December
corn gained 0.4% to $4.96 a bushel.
Soybean futures at
least managed to hold steady at $14.70 ¾ a bushel for July delivery, supported
by grains' performance, and with concerns appearing to wane a little for now over
China, the top importer, where reports of hefty order cancellations had dogged
In fact, soybean futures for September did close 0.6% lower
at 4,472 yuan a tonne on China's Dalian exchange on their first trading day
since Wednesday, with national holidays in between.
As an extra prop to prices, there are some concerns over the
quality of the Argentine harvest.
"There is talk that the oil content is fairly low in the
Argentine soybean crop this year," CHS Hedging noted.
Among soft commodities, cotton
added 0.1% to 94.43 cents a pound in New York for December delivery, boosted by
a further sign of China's poor production prospects.
The China Cotton Association forecast sowings falling 12.6%
to 4.08m hectares this year, a slightly bigger drop than the 12% it had
The implications of changes to China's subsidy regime have
already prompted the International Cotton Advisory Council to warn that the
country will lose top rank in world cotton production, falling behind to India
for the first time in more than 50 years.