Corn hits $5, wheat soars on Crimea, dryness fears

Corn futures regained $5 a bushel, temporarily, and wheat prices jumped on both sides of the Atlantic, spurred by concerns of the Ukraine crisis driving import demand to Europe and the US, with Brazil dryness adding to buying pressure.

Corn futures for May delivery, the best-traded lot, touched $5.02 a bushel in Chicago, topping $5 a bushel for the first time for a nearest-but-one contract since August last year, before profit-taking set in later in the session.

Wheat for May soared 2.6% to $6.63 a bushel in Chicago, a three-month high, while in Paris jumping 3% to E212.75 a tonne, a level not seen in a nearest-but-one contract in 10 months.

The gains came amid ideas of continuing unease in Ukraine, whose southern Crimea region will on March 16 vote on joining Russia in a poll condemned in Kiev, and which has been seen as fuelling east-west tensions over the crisis.

Export worries

Although there is little evidence so far of disruption to grain export logistics in Ukraine, the third-ranked corn exporter and sixth-biggest wheat shipper, the crisis is seen as likely to prompt buyers to switch orders to other origins.

Futures prices as of 10:00 Chicago time (16:00 UK time)

Wheat, Paris (May): E212.50 a tonne, +2.0%

Wheat, London (May): £165.00 a tonne, +1.5%

Wheat, Chicago (May): $6.54 a bushel, +1.4%

Soybeans, Chicago (May): $14.52 a bushel, +1.0%

Corn, Chicago (May): $4.90 a bushel, -0.1%

"As Ukraine is the third largest corn exporter in the world, the ongoing tensions are causing worries that exports could be disrupted, even though there were no signs of disruptions as of yet," Vanessa Tan at Phillip Futures said.

It is also dissuading Ukraine farmers from selling, with crops, being dollar-denominated, viewed as a hedge against a vulnerable hryvnia, trading near record lows against the greenback.

"The conflict between Russia and Ukraine over the Crimean peninsula is continuing to boost the corn price," Commerzbank said.

 "The problems in Ukraine are likely to increase demand for US corn."

Ukraine, which has exporter 25m tonnes of grain so far in 2013-14, starting in July, has forecast shipments of a further 8.7m tonnes in shipments over the remaining four months of the crop year.

'Higher risk of a downgrade'

Australia & New Zealand Bank flagged the threat to wheat too, saying that "potentially lower exports from the Black Sea region", combined with some crop risks, "are likely to keep wheat prices elevated".

Ukraine has become a worry in terms of 2014 grains production too in part from the potential setback to sowings from financial constraints caused by unrest, but also dryness in central and eastern areas.

"A recent warm spell has left the Ukraine wheat crop with a higher risk of a production downgrade," the bank said, highlighting the thin snow cover which has left it vulnerable to cold weather.

"On top of this, soil moisture is low in both the Ukraine and Russia, leaving both crops dependent on good spring rainfall to meet current production expectations."

'Dryness still prevalent'

Dryness has also grown as an issue for US winter wheat, with a weekly update on Thursday from the US Department of Agriculture showing "dryness still prevalent in the western Corn Belt and the Plains", Richard Feltes at RJ O'Brien said.

The US hard red winter wheat belt, in the central and southern Plains, is "still facing a dry outlook over next four weeks, even through southern plains have two shots at light moisture over next week," he added.

And in Brazil too, the dryness more noted for sending coffee and sugar prices soaring is proving a setback for corn output too, in dissuading farmers from planting the grain, as a follow-on, so-called safrinha, crop on fields cleared by the ongoing soybean harvest.

In fact, some farmers are switching from safrinha corn, the main source of Brazil's corn export supplies, to wheat, of which the country is a strategic importer.

In the southern state of Parana, "drier weather in January and February, coupled with lower corn prices, stronger wheat prices and problems getting the corn planted in a timely fashion, convinced some farmers to switch to wheat," respected crop scout Michael Cordonnier said.

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