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Evening markets: 'deal to curb' Ukraine exports lifts wheat

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Just how bad a state are Ukraine's winter grains crops in?

It looks like the country's government is taking no chances over the level of damage caused by a double whammy of drought followed by freezing temperatures.

Despite farm ministry assurances earlier in the week that the government had no plans to impose curbs on


exports, to preserve stocks, a report in the Ukraine press on Friday added weight to talk of behind-the-scenes restrictions.

Ukraine's grain traders have, following government pressure, agreed to limit wheat shipments in the February-to-July period to 1.7m tonnes, the Ekonomicheskie Izvestia newspaper said.

Lowball exports

That will cap at 4.8m tonnes Ukraine's total wheat exports, half the level that traders had planned for, the report added.

And this from a country which shipped 13m tonnes three seasons ago, rivalling Australia (which expects shipments of 22.3m tonnes this season).

Importantly, it is short of the 6.0m tonnes that the US Department of Agriculture factored in last week in its much-watched Wasde crop report (a downgrade from a previous estimate of 7.0m tonnes).

"It would reduce exports from what was expected and that was supportive to


and wheat prices," Darrell Holaday at Country Futures said.

Unseen supplies?

Not that everyone was quite so bullish.

UK grain traders at a major European commodities house, with strong interests in Black Sea grain trading, pointed to estimates that Ukraine has larger wheat stocks than the government believes.

"Consequently, we may have a rerun of last year with a late-season rush of old crop stocks to the ports in order to make room for the new harvest - especially if that winterkill is not as bad as the government thinks," the traders said.

Certainly, underestimating inventories is not unknown in the region, with Russian farmers and merchants turning out to have surprisingly full silos last July when Moscow lifted an 11-month ban on exports, following a drought hit harvest.

'Decent buying interest'

But wheat investors were not to be deterred, with the spate of orders this month from the likes of Egypt, Algeria and Saudi Arabia underpinning optimism.

"The wheat market has seen decent buying interest over the past week, as many key importers in North Africa and the Middle East set up purchases as international tensions return to the regions," Jonathan Lane, trading manager at UK-based Gleadell, said.

The USDA on Friday announced a 120,000-tonne sale of soft red winter wheat, the type traded in Chicago, to "unknown destinations".

Chicago wheat for March ended up 2.4% at $6.44 a bushel, this time outperforming Kansas wheat, which gained 1.0% to $6.89 ½ a bushel.

However, Paris wheat for March kept up with the pace, closing up 2.4% at E217.75 a tonne, ahead of London's May lot which gained 1.3% to £167.00 a tonne.

'Vulnerability to drought'

Dry conditions in northern US and Canada, ahead of the spring sowing season, are attracting comment too, in corn markets as well as wheat.

"Drought is big worry for US corn farmers in the Upper Midwest, ahead of spring planting," Gail Martell at Martell Crop Projections said, noting that Spencer, Iowa has received one-third of average rainfall since August.

Southern Minnesota and east central South Dakota have received record-low levels of rainfall since August, according to the US National Climate Data Center.

"The lack of stored ground moisture increases vulnerability to summer drought," Ms Martell said.

"Rainfall and snowmelt in the off-season is very valuable, since it re-charges soil profiles, moisture 'insurance' in the event of a summer drought."

'Part of the game'

With a bit of help from wheat, its own export order, of 132,000 tonnes from South Korea, and better thinking on demand from corn ethanol plants, the grain closed 0.9% higher at $6.41 ¾ a bushel.

That was enough, for once, to leave


in the shade, despite the oilseed enjoying a mega-order of 2.8m tonnes from China, almost all for 2012-13.

However, as Mr Holaday put it, "this is all part of the Chinese public relations trip from early this week", with the country confirming huge orders of the oilseed that they would make anyway.

"They will buy a lot more than 2.7m tonnes in the new crop year. This is just part of the game that is played."

Soybeans for March closed up 0.7% at $12.67 ½ a bushel.

Supply fears overplayed?

Still, that was better than many soft commodities could do, which performed more in line with common thinking coming into the day that a long weekend in the US, which celebrates President's Day on Monday, could bring caution to trading.

New York


ended down 1.1% at 91.45 cents a pound for March, losing the support it received in the last session from its own firm export data.

The US on Thursday reported weekly export sales of 166,000 bales, up from less than 50,000 bales the previous week, and led by Chinese demand.



latest spike ran into the dust, with New York's best-traded May lot closing down 2.5% at $2,345 a tonne, amid talk of selling by Ghana and Ivory Coast, the top two producers.

Besides, investors may have got too carried away with talk of disappointing weather squeezing supplies.

"Following a record 341,000-tonne surplus last crop year, global inventories are at their highest level for five years, meaning that even a slight supply deficit this crop year would not give rise to fears of any shortage," Commerzbank said.

Arabica regains favour

But at least New York arabica


managed to rediscover forward gears, rising for its first time this week, and rebounding 0.4% off a 15-month low to close at 200.05 cents a pound for March delivery.

The better-traded May lot gained 0.6% to $202.35 a tonne.

This time, it was London-traded robusta coffee which took the selling pressure, after a two-week run up attributed in part to a large position built up by one investor ran into sales by growers in Vietnam, the top producer of the bean.

London's March lot closed down 3.8% at $2,094 a tonne, losing ground not just against arabicas but against the May contract, which lost 2.4% to $1,994 a tonne.


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