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Wheat prices tumble, as demand fears mount

Wheat futures tumbled in the US amid ideas that prices had risen above levels needed to ration drought-thinned supplies, while improved hopes for northern Midwest sowings undermined corn.

However, sugar futures enjoyed more popularity, jumping 3% to close above 18 cents a pound in New York for the first time in two months, as Datagro joined analysis groups raising expectations for the world production deficit next season.

Chicago soft red winter wheat, the world benchmark wheat contract, ended 2.7% lower at $6.90 a bushel for July delivery in late deals, on course for a sixth successive negative close.

'Limited the interest'

The decline was attributed to ideas that prices had risen more than enough to ration exports of US supplies, which look likely, for hard red winter wheat at least, to be in short supply next season thanks to drought and frost damage to southern Plains crops.

The US Department of Agriculture has forecast the European Union for the first time overtaking the US in 2014-15 to become the world's top wheat exporter.

"The move up in US wheat values has limited the interest in US wheat exports," Darrell Holaday at Country Futures said.

At Citigroup, Sterling Smith told "Globally, we do not have a shortage of wheat. There is a shortage of hard red winter wheat in the US, but that is a different thing.

"Global cash prices are not going to climb to meet the board," as in Chicago Board of Trade values.

Already, looking abroad, Richard Feltes at RJ O'Brien noted that cash wheat traders are highlighting the "difficulty Black Sea exporters are encountering selling July/August wheat cargoes, despite falling prices".

The Black Sea is renowned as a fierce competitor on price.

Wheat vs corn

Don Roose, president at US Commodities, said that wheat futures were also being undermined by their unusually high premium over corn, a gap which had risen above $2 a bushel (a stark contrast to the, unusual, discount that wheat stood at two years ago).

"You are going to have less feeding of wheat. There will be less exports of US wheat," both price negative factors.

Furthermore, history shows that "typically in short crop years, US wheat puts in a top as we start harvest, which is not that far away".

Harvest time, in bringing a ramp up in supplies, tends to undermine prices by switching some market power to buyers.

'Favourable for planting'

As an extra setback for prices, forecasts improved for planting in the northern US, where sowings of spring wheat, as well as of the likes of corn, have been held up by wet and cold weather.

"Drier weather in the north western Midwest and north eastern Plains through the weekend will allow planting there to improve significantly," MDA said.

Minneapolis-based Benson Quinn Commodities said: "The current forecast looks favourable for progress in portions of central and western North Dakota.

"The next 3-4 days will be clear," if cool, but temperatures next week are expected to warm up "closer to normal".

Prices fall

And as further points for bears, Egypt, the world's top importer, said it had bought some 2m tonnes of wheat from the local market, and was hoping to purchase the same again, in a programme to reduce its reliance on world markets.

And the technical appeal of wheat futures took a knock, particularly in Chicago, where the July contract fell through its 40-day and 50-day moving contracts with little resistance, ending below these lines for the first time since February.

"The technical structure of the wheat market continues to break down," Benson Quinn Commodities said.

In Minneapolis, hard red spring wheat for July closed down 2.1% at $7.78 a bushel, while Kansas City hard red winter wheat for July lost 3.3% to close at $8.05 a bushel.

Losses in Paris were more curtailed, with the grain never having enjoyed the rally that US contracts did, with the November contract ending down 1.2% at E201.00 a tonne, ending below its 50-day moving average for the first time in three months.

'Better chances of clearing skies'

With northern US sowing conditions improving prospects for corn sowings too, futures in the yellow grain dropped as well, although less emphatically.

"Weather forecasts are showing better chances of clearing skies for much of the upper Midwest, which should allow planters catch up," CHS Hedging said.

And as for the Corn Belt proper, RJ O'Brien's Richard Feltes flagged talk from seed dealers that "some producers are upping initial corn acreage intentions".

As an extra setback, technical support levels failed as July corn dropped 1.4% to $4.95 a bushel, while the new crop December lot fell 1.2% to $4.89 a bushel, its weakest close in some seven weeks.

Weekly US ethanol production data were actually not so bearish, rising by 28,000 barrels a day to 922,000 barrels a day last week, but stocks rose by 162,000 barrels to 17.3m barrels, dampening the positive impact.

Mixed oilseeds

It was left to soybeans to protect bulls' hopes, which the oilseed did somewhat reluctantly, adding 0.2% to $14.86 a bushel for July delivery.

The new crop November lot did a little better, adding 0.3% to $12.22 a bushel for July delivery, with improved hopes for corn sowings lowering the risk of farmers switching to soybeans, which can be later planted.

Firm US cash markets also helped, with the strong demand at China's auction of soybeans from state reserves offering some positives.

But elsewhere among oilseeds, canola could not keep up its rally, as mused on earlier, undermined by improved Canada sowings prospects.

July futures closed down 0.9% at Can$492.80 a tonne in Winnipeg, having hit a six-month high of Can$504.10 a tonne earlier.

'World surplus fading very quickly'

For real gains, it was necessary to go to soft commodity markets, where raw sugar futures for July soared 2.5% to 18.25 cents a pound in New York, the highest finish bar one for a spot contract in seven months.

London white sugar for August gained 1.8% to $494.40 a tonne, the best finish for a spot contract in nearly eight months.

The sweetener has been boosted by surprisingly bullish chatter emanating from a trade gathering in New York, where Datagro became the latest analysis group to issue more bullish data for 2014-15, raising its estimate for the world deficit to 1.61m tonnes, from 2.46m tonnes.

"The world surplus is fading very quickly," said said Plinio Nastari, the Datagro president, flagging the drought damage to production hopes for the Brazilian Centre South cane crop, which he pegged at 574.6m tonnes.

The comments followed more bullish assessments on Monday from the likes of Platts Kingsman, the International Sugar Organization and Copersucar, while industry group Unica highlighted a slow start to Brazil's 2014-15 sugar production campaign.

Weather improvements

However, New York arabica coffee eased 1.5% to 184.20 cents a pound for July delivery, as investors looked for Brazil harvest news to help determine just how much damage drought earlier this year wrought.

"The market is still waiting for news of actual harvest yields in Brazil," said Jack Scoville at Price Futures, adding that weather news was positive for farmers in Central America, where "rains are appearing that should trigger a new round of flowers, and also will help cherries as they start to appear for the coming crop".

Talking of Brazil, Citigroup's Sterling Smith said that "harvest weather is currently favourable, and as bull markets need to be fed, this one is looking for food".

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