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Evening markets: US fears, Strat Grains downgrade lift wheat

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Crops may have opened Wednesday on poor form, but they zoomed robustly into late deals.

In truth, the day provided something of a turnaround in many markets, as bargain hunters reckoned prices had fallen enough for now to take account for macroeconomic concerns, notably regarding Greece.

Wall Street


traded higher in afternoon deals, while the safe haven of the


curtailed its gains to 0.1%.

And, with bears on the back foot, it was wheat which proved a beneficiary of the rush for buying slips, soaring 3.5% to $6.29 ¾ a bushel in late trading in Chicago.

'Lots of concern about dryness'

The grain's recovery was boosted in part by growing fears over dry weather in US hard red winter wheat country, cutting the chances of official expectations of a near-record yield being realised, especially in Kansas, the top wheat-growing state.

Darrell Holaday at Country Futures noted "lots of concern that the dryness the last two-to-three weeks has trimmed hard red winter wheat yields in Kansas, and we concur.

"In addition, weather models for the weekend rain look less promising for the hard red winter wheat areas."

US Commodities said: "The central US weather remains dry the next 10 days and it will be hot in the southern Plains. The dryness is from Kansas to the Delta."

China, Russia, France….

However, the concerns are increasingly spreading abroad too.

"The weather in the North China Plains remains a concern with limited rain the next 10 days," US Commodities said.

At Allendale, Paul Georgy said: "The Ukraine and Russia spring and winter crop regions have rain in the forecast but never seems to arrive.

"This area will have to be watched closely over the next several weeks."

FCStone's Mike O'Dea also added to the watch list "sub-freezing temperatures for parts of France and Germany called for late this week", these two countries being the European Union's top wheat producers.

Strategie Grains downgrade

And that's before taking account of the damage already done to the EU crop, which may be higher than had been forecast, according to Strategie Grains, which cut its estimate for the region's soft wheat harvest by a further 4.2m tonnes to 122.7m tonnes.

The decline factors in downgrades of 600,000 tonnes to the French crop, 1.4m tonnes to Poland's harvest, and 1.6m tonnes of Germany's output, thanks to cold and dry conditions earlier in the season.

"Both London and Paris futures markets have responded to this by posting good gains on the new crop despite the continuing bearish financial drivers," grains traders at a major European commodities house said.

Paris wheat for November added 1.9% to E203.25 a tonne, while London's November contract added 1.8% to £152.00 a tonne, if small beer compared with Chicago wheat.

Ethanol boost

Wheat's gains fed through into the


pit too, where the July contract stood 2.1% higher at $6.09 ¾ a bushel.

Sure, a sale of 900,000 tonnes of US corn to China was not as bullish as it first appeared, being a switch from volumes which had been booked to "unknown", but had been presumed as China anyway.

However, the grain did get an extra boost from weekly ethanol production data showing that lower prices seem to have got biofuels plants moving, with US output last week rising 7,000 barrels a day to a two-month high of 904,000 barrels a day.

Inventories fell too, by 744,000 barrels to 20.6m barrels, the lowest for more than three months, indicating that the extra output is being swallowed up.

"US ethanol production is up, stocks down - that is supportive for corn prices," FCStone said.

'Proxy of the macro markets'


continued to lag, weighed down by the huge net long position held by funds and speculators which has rendered them vulnerable to broader financial market sentiment.

"Beans are now a proxy of the macro markets. There is a pretty good correlation between crude and beans," FCStone's Mike O'Dea said.

That overcame continued concerns at Argentine yields, which US Commodities said "remain disappointing", indicating "maybe a 40m-tonne crop".

Chicago's July lot was 0.4% higher at $14.18 ¼ a bushel.


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