Wheat prices rebounded strongly on Monday on fears over Ukraine
and the dryness in the US Plains, despite a caution from Macquarie that the
market has "built in sufficient weather risk premium".
Wheat futures for May reached $7.16 a bushel in Chicago, a
gain of 3.3%, while hitting $7.94 in Kansas City, which trades hard red winter
wheat, up 2.9%.
In Paris, wheat for May hit E213.75 a tonne, a gain of 1.4%.
The headway came amid lingering concerns over the impact on
US winter grain seedlings from dryness in states such as Kansas and Oklahoma,
primarily hard red winter wheat country.
'Dust bowl winds'
"US wheat futures are gaining support from continued dryness
in the southern Plains," Benson Quinn Commodities said.
Wheat prices, Monday as of 11:40 Chicago time (16:40 UK time)
Chicago: $7.14 a bushel, (+3.0%)
Kansas City: $7.93 ½ a bushel, (+2.9%)
Minneapolis: $7.64 a bushel, (+2.8%)
Paris: E213.50 a tonne, (+1.3%)
London: £169.75 a tonne, (+0.9%)
Values for May contracts
"The moisture situation in the southern plains continues to
offer support to wheat markets that have a tendency to get overbought."
Weather service MDA said that "moisture remains very short
across the Plains, and continues to decline across the Midwest and Delta".
Although some rain is due in the Midwest and Delta, areas
growing soft wheat, this week, "more will still likely be needed to completely
replenish moisture", MDA said.
QT Weather said that "dust bowl winds are blowing like a
son-of-a-gun again today", with many observers highlighting dust storms in states
such as Texas and Oklahoma.
Furthermore, "the situation in Ukraine will continue to draw
some interest", Benson Quinn Commodities said.
SovEcon on Monday cautioned of potential long-term setbacks
to Ukraine's grain export capability from the Crimea crisis, while also
flagging the potential for a further rise in wheat prices in Russia, which was
already last week, in an Egyptian tender, revealed to be losing competitiveness
against rival origins such as France and the US.
Commerzbank said: "The political tensions between Russia and
Ukraine could hamper not only production there, but above all the international
However, Macquarie urged caution against expecting the rally
to persist, noting that US wheat is still early in its development, meaning
that "we can, in reality, tell very little about the crop today".
"Given the run up in prices through the last couple of weeks,
we believe the market has changed from one that would be required to rally if
dryness persisted to one that will likely see a price fall if rains build
through these regions," Macquarie analyst Chris Gadd said.
He downplayed the extent yet of the threat from dryness to
other crops too, including those in eastern Germany, Poland, and southern
Ukraine, and in Australia where a dearth of rainfall has raised question marks
over the forthcoming autumn sowing period.
"Whilst we see that massive downside in prices is unlikely
in the near term, we do though believe the market has built in sufficient
weather risk premium to reflect current concerns," Mr Gadd said.
Chinese imports to
Macquarie also highlighted the prospect of weaker demand for
wheat this season, particularly from China, whose import needs for 2013-14 were
spurred by a poor harvest last year.
"Whilst we see that domestic demand will likely see little
change in the 2014-15 season, we would expect exports to see a considerable
"We expect trade flow demand to fall in the 2014-15 season
as the exceptional demand that we saw from China last season should fall back
to normal levels."