IKAR in Mass Media

Morning markets: talk of Russia export ban lifts wheat price

10 сентября 2014 года

A short week for grain trading, after the US holiday, tried to end on a sweet note for bulls – although there are a number of hurdles yet which could trip up the rally.

All the Chicago majors posted healthy gains, led by wheat, which added 1.3% to $5.37 a bushel in Chicago for December delivery as of 09:30 UK time (03:30 Chicago time).

And this despite the headwind of growing hopes of accord in eastern Ukraine.

Petro Poroshenko, Ukraine's president, said he would declare a ceasefire by the country's forces today if talks in Minsk with pro-Russian rebels agree on a peace plan.

With Ukraine, and Russia, both major exporters of wheat, the wheat market has been something of a barometer of regional tensions.

Russian export 'ban'

But what it did have on its side was a report that Russia could exercise its historic liking for restricting grain exports, with Prime Minister Dmitry Medvedev proposing a ban if shipments exceed 26.9m tonnes, according to Russia's Grain Union.

The alleged ban, apparently aimed at ensuring domestic and export needs are balanced, could have quite an effect on restricting export volumes, given the strong harvest this year.

Analysis group Ikar on Thursday estimated 2014-15 Russian grain exports at 33.0m tonnes, including 23.0m tonnes of wheat, 4.5m tonnes of barley, and 4.3m tonnes of corn

(The USDA has its estimates at 22.5m tonnes for wheat, 3.5m tonnes for barley and 3.8m tonnes for corn.)

Separately, ProZerno pegged Russia's grain exports at 32.7m tonnes, including 23.5m tonnes of wheat, 3.6m tonnes of barley and 4.5m tonnes of corn.

US quality fears

As an extra boost too, US Wheat Associates revived concerns about the quality of the rain-beset US spring harvest, saying that recent reports appeared to indicate a tail-off in quality after an average start.

This after its caution over elevated levels of vomitoxin, a toxic fungal residue, in US soft red winter wheat (the type traded in Chicago).

Spring wheat harvest conditions remain better but non-ideal, with Brian Henry at Benson Quinn Commodities noting that while "forecasts offer a drier weather pattern for much of next week in western regions, cool temperatures expected through the weekend will limit drying".

And there were ideas of short-covering too ahead of the weekend, as holders of short positions take profits.

'Backed away from frost'

A similar factor was seen as supporting corn too.

"The corn market is slowly moving into oversold conditions and profit-taking may offer support into the weekend," Mr Henry said, if adding that "personally, I'd favour the market following the recent lower trend and leave it alone".

After all, the reports of strong yields from the early US harvest continue and ideas of a crop-harming early frost are in retreat.

"Weather models have backed away from ideas that there could be a frost/freeze event late next week in northern reaches of the Corn Belt," he said.

Corn for December was 0.6% higher at $3.48 Ѕ a bushel.

Key price level

And soybeans for November nudged 0.1% higher to $10.04 Ѕ a bushel, batting away, for now at least, ideas of a drop below $10 a bushel – which some investors fear could precipitate considerable further selling.

"The last few times we crossed below $10.00 a bushel was 2008 and 2009, and both of those years saw significant liquidation and price accelerations shortly after falling below this crucial level," one US broker said.

"Granted, this was during the financial crisis, which certainly had an impact on commodities. But it is a good representation of how fast this market could break during a sell-off."

Soybeans on China's Dalian exchange ended 0.3% lower at 4,568 yuan a tonne.

Data later

Still, the day has plenty of potentially price-altering factors yet to come, one being the release by Statistics Canada of Canadian grain stocks data.

The market is expecting a figure for wheat of 10.7m tonnes, and of 3.0m tonnes for canola.

Informa Economics is expected to come out with revised US crop estimates, the latest ones being, for corn, production of 13.988bn bushels on a yield of 168.0 bushels per acre.

For soybeans, the last production figure was 3.7bn bushels on a yield of 44.5 bushels per acre.

More data later

And there are weekly US export sales data too, seen coming in at 250,000-450,000 tonnes for wheat, compared with 404,000 tonnes last time.

For corn, new crop exports are expected at 550,000-750,000 tonnes, compared with 696,000 tonnes the previous week.

And for soybeans, export sales for 2014-15 are seen at 900,000-1.10m tonnes, compared with 1.29m tonnes last time.

Markets will also be focusing on the strength of the dollar, which in the last session hit its highest since July 2013 against a basket of currencies.

A stronger dollar undermines prices of dollar-denominated commodities by making them less affordable to buyers in other currencies.

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