Concerns, stoked by falling US crop condition, over
prospects for world wheat supplies received further support in a caution over
the threat from El Nino to Australia's crop, and of winterkill in Ukraine.
Agritel warned that cold weather, which US officials have
identified as hurting wheat seedlings in Plains states such as Kansas and Oklahoma,
has damaged crops too in Ukraine, where warm weather for much of the winter has
limited snow cover.
"The cold wave recorded last week in Ukraine has certainly
damaged winter crop," said Paris-based Agritel, which has an office in Ukraine.
"It is extremely difficult to assess damage yet, but farmers
report that some fields in south east Ukraine will probably be reseeded.
Air temperatures fell to minus 20 degrees Celsius last week,
leading a drop in soil temperatures to nearly minus 17 degrees, "which is a
critical temperature for wheat", the consultancy said.
'In good condition'
The comments follow broadly positive comment on Ukraine
grain prospects up to now, with a report from the US Department of Agriculture's
Kiev bureau overnight saying that the Ukraine winter crop "is in good condition
despite winter storms and somewhat unfavourable fall planting conditions.
"However, if the recent cold wave continues, the picture may
change in some regions," the bureau said, confirming temperatures of minus 20
degrees Celsius or below.
That said, the freeze had hit most in north eastern area
where "adequate snow cover is observed".
El Nino fears
& New Zealand Bank highlighted the threat to Australian crops, but in
particular wheat, from a potential El Nino weather pattern which appears to have
a near- 50% chance of forming by August, the southern hemisphere spring.
Weather models based on sub-surface sea temperatures, which
have a more accurate long-term forecasting record, "are indicating an even
stronger probability of El Nino than consensus," said Paul Deane, ANZ senior ag
"But uncertainty will only diminish once we progress into
late [southern hemisphere] autumn when model accuracy improves significantly."
'Tight supply already
The threat of an El Nino, linked to warm Pacific water
temperatures, is being increasingly talked of on agricultural commodity
markets, given its history of changing weather patterns in many key producing
areas, eg West Africa, where it typically brings dryness which curtails cocoa
In Australia, an El Nino forming later in the calendar year is
typically linked to lower wheat yields in eastern areas, thanks to dry weather,
"If Australia's wheat production is shaped by an El Nino in
2014, one of the main features would be a repeat of the particularly strong
wheat price basis experienced in 2013," when inventories were drained by strong
export demand after a fall in production.
"Tight grain supply is already evident in on parts of the
east coast of Australia, with still eight months until new crop wheat crop
supplies become available."
'Mood seems to be
The growing weather concerns were echoed by Commerzbank, which
cautioned that "the risk of winter damage and a possible El Niño phenomenon in
the second half of the year is casting a shadow over the outlook for 2014-15.
"We therefore expect the US wheat price to increase further
in the months ahead."
The bank added that "the mood in the wheat market seems to
be changing now, possibly encouraged by the weather-related rally for arabica
coffee", futures in which soared 19% in the week to Monday, spurred by concerns
over dryness in central Brazil.
Nonetheless, wheat on Wednesday gave back some of the last
session's near-4% gain in Chicago, standing 0.7% lower at $5.80 ¼ a bushel for
March delivery, as of 06:30 local time (12:30 UK time).
* Australian dryness would also threaten cotton production
prospects, by prompting a further draw on water levels in eastern irrigation reservoirs
that "have declined significantly over the past two years", Mr Deane said.
"A wet 2014 is needed to replenish dam storage levels ahead
of cotton planting."