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US woes send wheat prices to fresh one-year highs

Wheat prices set fresh one-year highs as weather indicated a further test, through hot weather, for the drought-hit US crop, which data overnight confirmed was continuing to deteriorate.

Soft red winter wheat for July hit $7.44 a bushel in Chicago, the highest for a nearest-but-one contract since February last year, before easing back to stand at $7.41 a bushel with some 15 minutes of trading to go, up 1.7% on the day.

Hard red winter wheat, the type at the centre of the US crop concerns, was up 2.5% at $8.52 a bushel, having hit $8.55 a bushel earlier, the highest in 15 months for a second-in contract.

The gains came amid further tensions in Ukraine, a major grain exporter, as Moscow ruled out fresh talks on the country's crisis, unless pro-Russian opposition groups were involved.

'Ripping up the wheat crop'

Traders also focused on deteriorating prospects for US winter wheat production, in particular output of the hard red winter type grown in the drought-hit southern Plains, as forecasts signalled little chance of much-needed rains.

"We will likely see some pattern change this weekend that will introduce more moisture to the Plains and western Midwest, but I am not sure it will very active," said Darrell Holaday at broker Country Futures.

"There is still no significant precipitation projected in the western two-thirds of Kansas," the top US wheat-producing state.

CHS Hedging said: "Near 100-degree-Farhrenheit temperatures and winds are ripping up the southern Plains' battered hard red winter wheat crop."

'Moisture will remain very short'

Weather service MDA said that forecasts showed some rains this week for parts of Kansas, Nebraska, Oklahoma and Texas.

But coverage will be limited, at 20%, and "moisture will remain very short in west central and south western areas, further stressing wheat", MDA said.

And this after US Department of Agriculturedata overnight highlighted the decline in the condition of the US winter wheat crop, with just 31% seen in good or excellent condition, down 2 points week on week, and hard red winter wheat accounting for little of that.

Indeed, USDA scouts warned of conditions similar to the 1930s Dust Bowl in Oklahoma.

"While late-season rains can still reverse the effect of this early-season dryness, the forecast for the next two weeks is not promising," Morgan Stanley said.

"Without meaningful precipitation in Kansas and Oklahoma by late May, we may need to start reducing our US wheat yield estimate from our current 46.4 bushels per acre."

Former Soviet Union dryness

Spring wheat soared too, adding 2.3% to $8.07 a bushel in Minneapolis, lifted by the strong performance of hard red winter wheat, a rival in higher protein terms,  and with the USDA data showing wet weather delaying sowings of the grain too.

That said, with the euro strengthening, and European production prospects more upbeat, Paris wheat for November could add only 0.2% to E209.00 a tonne.

London wheat for November did little better, adding 0.4% to £158.20 a tonne.

Still, there are some crop concerns not too far away, with MDA noting that while rains had returned to north western Ukraine and southern Belarus over the past week, "much more rainfall is needed to end dryness there.

Also, in Russia, "dryness continues in the north western Central Region, north western Volga Valley and central North Caucasus", and with the latter two looking like missing out on rains next week.

'Not a positive development'

Wheat's performance helped save corn from weakness which had look unavoidable given the USDA data overnight showing sowings lagging, but not by enough to concern analysts, and with some unexpected cancellations of orders from the US too.

Spain ditched 100,000 tonnes in orders US corn, with an unknown buyer cancelling a further 120,000 tonnes, the USDA said.

That was "certainly not a positive development for a market that really relied on strong export activity", Country Futures' Darrell Holaday said

Most US export news has been surprising strong in corn, including US weekly shipment data released on Monday.

Spread factor

Still, "the continued strength in wheat continues to result in fund buying in both corn and wheat," Mr Holaday said.

"The spread between corn and wheat is so wide that as long as wheat goes up it will be supportive to corn."

And weather forecasts were not all so helpful to corn plantings either, with rains expected to build later this week, slowing fieldwork.

Corn for July was up 2.0% at $5.13 a bushel.

Import talk

Soybeans , as has been their wont of late, held up the rear, undermined by spreading ideas of large US imports of the oilseed in train to resolve the squeeze in domestic supplies.

Benson Quinn Commodities said: "The soybean market continues to battle a deteriorating technical structure and lessening concerns on bridging the gap from old to new crop on more talk of soymeal and soybean imports."

Such talk "is seeing follow-through liquidation on the part of the longs".

CHS Hedging said: "Two cargoes from Brazil are expected to arrive this week and another boat just launched, expected to arrive at the end of the month.

"Since mid-March, 12.5m bushels of soybeans have been imported from Brazil, with another 11.5m expected by the end of May."

'Liquidation continues'

At RJ O'Brien, Richard Feltes said that "soy liquidation continues as export sales slow to a halt, crush eases on spring maintenance, and concern over tight summer soy stocks are mitigated by increasing Brazil soy imports".

Furthermore, a sharp drop in Chinese futures overnight, and a cut to the commerce ministry estimate for the country's imports last month, did little to help sentiment.

Elsewhere in oilseeds, palm oil dropped too in Kuala Lumpur, by 0.6% to 2,568 ringgit a tonne, undermined by revived production ideas.

Chicago soybeans for July stood 0.4% lower at $14.57 a bushel.

Cotton drops

Among soft commodities, cotton eased, undermined by broader economic concerns which dragged shares lower by 0.4% in London, 0.7% in Frankfurt and 0.7% in late deals in New York.

Furthermore, there look like being drier conditions ahead for the US Mississippi Delta region, raising the prospect of a pick-up in sowings progress by growers well behind on sowings.

Cotton for July eased 0.9% to 93.94 cents a pound in late deals in New York.

Weak technical signals

Raw sugar for July ended down 1.5% at 17.20 cents a pound in New York, heading back towards the low end of its recent trading corridor.

"Futures remain in a trading range, with the potential for crop losses in Brazil providing support and the current oversupplied market conditions keeping sellers active," Jack Scoville at Price Futures said.

While there is "increased buying interest in world markets as Muslim countries get ready for Ramadan in June", supplies are being supported by the ramp up of the Brazilian Centre South cane processing season.

As an extra downer, China, once the top importer, looks like taking in considerably less of the sweetener in 2014-15, perhaps less than its quota of 1.9m tonnes.

And technically, the July contract lost points by closing below its 200-day moving average, and below its 100-day moving line for the first time since February.

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