Morning wheat: US wheat, Ukraine send wheat to one-year high

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.

China data

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.

Shares closed 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 up

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 interrupted trade.

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 seven days."

 '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".

Saudi purchase

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 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 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 a bushel, retaking the psychologically important $5.00-a-bushel mark, while new crop December corn gained 0.4% to $4.96 a bushel.

Soybeans gain

Soybean futures at least managed to hold steady at $14.70 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 markets.

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.

Cotton concerns

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 foreseen earlier.

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.

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