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El Nino fears, Ukraine freeze add to wheat jitters

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

 Separately, Australia & 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 economist.

"But uncertainty will only diminish once we progress into late [southern hemisphere] autumn when model accuracy improves significantly."

'Tight supply already evident'

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 output.

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, ANZ said.

"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 changing'

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."

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