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Morning markets: talk of the S word keeps wheat on the boil

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There are various trigger words that trigger alarm in different agricultural commodities markets, such as vomitoxin in regards to corn, roya fungus in the coffee market, and the Harmattan wind for cocoa.

One of the most evocative for wheat investors is the Sukhovey, meaning thirsty in Russian, a wind which brings the country and surrounding areas dry desert air, and threatening large crop losses, as two years ago.

And, premature or otherwise, it has reappeared in wheat market conversations, with positive implications for prices.

Jonathan Watters at Benson Quinn Commodities, for instance, noted "forecasters bringing up the potential for Sukhovey winds in Russia, which destroyed much of the crop in 2010".

'Hurt yield potentials'

Certainly, talk of risks to the Russian crop is widespread.

"Weather concerns exist in southern Russia where hot, dry weather has hurt yield potentials," Luke Mathews at Commonwealth Bank of Australia said.

At Australia & New Zealand Bank, Paul Deane said the state of the southern Russian crop was "of increasing focus".

"Crop development is now well behind this time last year and the long term average. Some areas are even being compared to the 2003 crop which was southern Russia's smallest harvest in a decade."

'Materially increasing the risk'

And it is not the only weather concern.

In Australia, "the dryness through a large area of the east coast grain belt", as highlighted by oilseeds experts on Wednesday, "is slowing planting progress, and raising concerns for the emergence and establishment of crops already sown", Mr Deane said.

"This, plus a less-than-convincing weather outlook for widespread rain over the next fortnight, is now materially increasing the risk of area sown to


being scaled back."

And then there are the concerns over Europe, for whose soft wheat harvest Strategie Grains cut its estimate on Wednesday, and the US, where dryness in hard red winter wheat areas has re-emerged as a threat, albeit one likely to mean large rather than superb yields.

Lynette Tan at Phillip Futures clocked forecasts that "dry weather is expected around most of the US Plains for the next 10 days, except for a few light showers during the weekend".

'Potential to continue its rally'

Throw in a better day on external markets - after Japan revealed economic growth at a solid 1% in the January-to-March period – with Asian


rising and the safe haven of the


rediscovering reverse gears, and the stage was set for a solid start in farm commodities, wheat especially.

Chicago's July wheat lot stood 0.7% higher at $6.43 ½ a bushel at 08:00 UK time (02:00 Chicago time), taking to 8% its rebound so far this week, and moving ahead of its 50-day moving average for only the second time this month.

Kansas wheat for July added a further 0.8% to $6.61 ¼ a bushel.

How long the gains can continue, of course, is a moot point,

"There is no doubting wheat has the potential to continue its rally, but a move to the high end of the range with harvest just a couple of weeks away could cause some of the bulls to take a step back," Mr Watters said.

'Expansion of more imports'

Still, its gains put a bit more lead in


pencil too. Chicago's July contract added 0.2% to $6.21 a bushel.

Corn is also getting help from talk that US ethanol producers, who data on Wednesday showed raising output again, are short of coverage over the summer, and by ideas that China has bought more.

And, after all, the China National Grain and Oils Information Centre (CNGOIC) think tank on Thursday acknowledged the country was in for a corn deficit in 2012-13, with demand expected at 199m tonnes ahead of production at 197.5m tonnes. (Not that Chinese estimates are taken as gospel, of course.)

"China currently is looking for low-priced new crop... and expansion of more imports is foreseen," the centre said.

'China bought several cargoes?'


, meanwhile, added 0.7% to $14.31 ½ a bushel for July, in part riding the broader market mood, which is currently having a large impact on the oilseed thanks to huge fund positions in the crop.

Furthermore, there are rumours of Chinese purchases here too, with Benson Quinn noting "talk in the trade that China has remained active in the market for old and new crop soybeans.

"There was some talk China bought several cargoes overnight Tuesday-Wednesday but majority may have been from Argentina."

Whatever, the latest US weekly export sales data, due later, are expected to show another strong week for soybeans, at 1.0-1.4m tonnes old crop and new, if below the 1.8m tonnes last time.

For corn, the figure is expected at 0.9m-1.0m tonnes, up from 473,000 tonnes, and for wheat at 400,000-600,000 tonnes, in line with the previous week's figure.


Lingering impact of drought'

Among soft commodities, one question was whether raw


could build on its rally, after in the last session enjoying its best day in nearly two months.

And against a headwind overnight of an official estimate that Thailand, the second-ranked exporter, will produce 10.2m-10.3m tonnes of the grain in 2012-13, putting a fresh record on the cards after the 10.2m tonnes in 2011-12.

Still, with a strong seasonal tendency to start rebounds in May, and with Copersucar on Wednesday estimating Brazilian Centre South sugar output this year at 32m tonnes, below the 33.1m tonnes from industry group Unica, the sweetener continued its ascent.

"The lingering impact of a drought and falling yields are taking its toll on Brazil's massive cane plantations," Phillip Futures' Lynette Tan said.

Raw sugar for July gained a further 0.7% to 20.87 cents a pound.


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