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Wheat leads gains in grain markets, in Ukraine-fuelled rally

Wheat prices jumped 3%, leading futures of other grains higher in what one broker termed a "three legged stool" of bullish events the main one being the building tensions in Ukraine, and concerns of a fresh Russian invasion.

Rather than bowing to an early-Monday deadline to quit a building in east Ukraine that they have been occupying, pro-Russian protestors upped their demonstration against Kiev rule by occupying another government building.

With Moscow warning Kiev against reprisals against the pro-Russian protestors, and US and Russian delegates involved in a lively debate at the United Nations on Sunday, fears grew over rising tensions in a region which is a major producer and exporter of grains.

Besides the potential direct threat to grain export logistics from the unrest, markets are factoring in the knock-on effects too from the impact of deteriorating credit conditions and a weak currency on prospects for the Ukraine harvest this year.

'Significant amount of buying'

"The new tension in eastern Ukraine has prompted a significant amount of buying," Darrell Holaday at broker Country Futures said.

While the country is actually a bigger exporter of corn than wheat, "the wheat market has always been the buyer's choice when new developments occur in Ukraine".

CHS Hedging said that "tensions in Ukraine once again, brings into question their ability to export wheat, adding that Ukraine farmers also struggle with uncertainty about input financing".

Indeed, Richard Feltes at Chicago broker RJ O'Brien said that "2014 Ukraine grain production prospects are a subject of debate with some observers concerned that farmers will encounter reduced access to credit and inputs".

Paris lags

In fact, not all the news from the region was so downbeat.

Goldman Sachs played down the risk of sanctions against Russian grain exports, noting that the country is a big supplier to poorer countries.

On cue, Russian supplies proved the cheapest at an Iraq tender, offered at $331.69 a tonne on a c&f free out (ciffo) basis, below Canadian supplies offered at $340.50 a tonne and Ukrainian at $342.73 a tonne.

And the European Union cut import restrictions on Ukrainian goods coming into the bloc, a move expected to buy-ins of the likes of grains.

It was perhaps little surprise that Paris wheat took a bit of time to get going, before ending up 2.0% at E214.00 a tonne for May delivery.

'Disappointed with precipitation'

Still, wheat markets did have two other supports to rely on.

Mr Holaday said: ""The wheat market is standing on a three-legged stool today that is supporting the double-digit gains," in cents-per-bushel terms.

The first was the disappointing rain in the southern US Plains, which proved even smaller over the weekend than the minimal levels forecast, with moisture badly needed to refresh drought-hit crops.

Furthermore, more cold weather is expected too.

"Hard red winter wheat producers were disappointed with precipitation over the weekend and a hard freeze tonight adds to concerns," CHS Hedging said.

"There was a weekend precipitation event in eastern Kansas," the top US wheat-growing state, "but the western half of Kansas appears to have only received light rain and snow."

Firm exports

Mr Holaday added that "the third leg is the fact that the wheat market was very oversold on the close Friday.

"So the interest in selling wheat today is very low," meaning the Ukraine crisis and US dryness "have had a larger impact" than might have been expected.

Actually, there was something of a fourth leg too in terms of US data on wheat exports for last week which, at 683,544 tonnes, beat expectations and the 626,404 tonnes the week before, easing some of the concerns over demand fostered by a lack of US success in high profile tenders of late.

In fact, Taiwan purchased 92,550 tonnes of US wheat over the weekend.

Chicago wheat for May closed 2.8% higher at $6.78 a bushel in late deals, while its Kansas City-listed hard red winter wheat peer was up 3.1% at $7.41 a bushel.

Minneapolis spring wheat for May gained 2.2% to $7.17 a bushel.

Plantings data

With wheat flying, it was hard for corn to perform too badly, although there were some nerves ahead of key data expected at 15:00 Chicago time (21:00 UK time) when the US releases its first planting progress data for the grain of 2014.

Sowings are expected to have been slow, thanks to cold weather and soil temperatures in the Midwest, and too much rain in eastern areas too.

But how slow?

"Trade is expecting 2-5% of corn planted nationally," Allendale said, a wide enough spread it has to be said, equivalent to more than 2.5m acres.

'Unseasonably cool'

Meanwhile, sowings progress this week may be slow too.

"Heavy rain events across Iowa, Wisconsin and Arkansas will slow fieldwork this week as we approach the insurable date for the 2014 corn crop," CHS Hedging said, adding that "temperatures appear unseasonably cool, also slowing spring planting".

That said, Mr Holaday noted that the midday run of the GPS weather model "is a little more friendly for corn planting next week with reduced moisture in the Midwest and warmer temperatures".

That reduced the popularity of the grain, which had also received some support from strong US exports, at 1.45m tonnes last week, as measured by cargo inspections.

Chicago's corn contract closed up 0.9% at $5.03 a bushel, lagging wheat but retaking its 10-day moving average.

'Very concerned about Chinese default'

The grain in fact matched soybeans, which ended up 0.9% at $14.76 a bushel in Chicago for May delivery.

Sure, many concerns remain about Chinese defaults.

In fact, Shanghai-based research group JC Intelligence forecast that China could could default on 2m tonnes of soybeans, adding that the country's imports in July, July and August could total 16.5m tonnes down some 4m tonnes year on year.

"The soybean market is very concerned about the Chinese default on several loads of soybeans," Paul Georgy Allendale said.

Data on Tuesday

But that is not all the market has to think about, with the NOPA industry group to reveal March US soybean crush data on Tuesday.

Ideas for the figure have risen, with the likes of Jefferies Bache flagging "the extremely large soymeal exports seen over the past few weeks".

Analysts expect a crush figure of 146.1m bushels, and 1.92bn bounds for soyoil stocks. A year ago the crush figure was 137m bushels.

Weekly US exports were not so hot at 267,939 tonnes sure, well down on the 510,000 tonnes the previous week but leaving the country still on track to hit the figure of 43.0m tonnes expected for the full season.

Harder softs

Among soft commodities, cotton for July gained 0.2% to 92.28 cents a pound in New York, helped by concerns over the dryness in the southern US extending to output of the fibre too, with Texas being the top producing state.

And arabica coffee for July added 1.9% to 207.40 cents a pound, with Somar saying that rains hitting Brazil's coffee belt, while capable of halting damage from the area's drought, were too late to promote any recovery in a crop which is already being harvested in some areas.

Goldman Sachs lifted its forecast for arabica coffee futures, albeit to levels below the futures curve, but acknowledged "upside risk" to its estimates.

Softer softs

However, cocoa was soft falling 0.3% to £1,878 a tonne in London for July, and by 0.1% to $2,996 a tonne in New York, amid talk of rains boosting hopes for the mid-crop in Ivory Coast, the world's top producing country.

The market is expecting some more grind data later this week, on North American volumes, expected to show only small growth year on year.

"We'd rather focus on the Asian and West African numbers which represent a greater tonnage," Marex Spectron said, adding that "the sentiment is that these numbers should add up to +2.5-3% year-on-year when collated altogether".

Processing has been switching from consumption areas, such as Europe, to producing regions but by how much?

And raw sugar for May eased 1.3% to 16.59 cents a pound in New York, with Brazil rains expected to foster some recovery in cane, and with doubts too over the hedge funds' willingness to increase further their net long position.

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