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PM markets: hefty Russian supplies but brakes on wheat rally, 05.07.17

With US markets closed, European grain investors looked east.

And the view was, for bulls, not so appealing.

While US futures have been soaring, lifted by worries over the extent of drought damage to the northern Plains spring wheat crop, Russian prices have been a bit slower off the mark.

That matters particularly for European investors, given that Russia is sat on their doorstep and has huge export potential.

'Limited price growth'

Sure, Black Sea export prices rose last week.

But by a relatively modest $2.50 a tonne to $188 a tonne free on board, according to Ikar.

SovEcon pegged Black Sea prices for supply in July-August at $184-187 a tonne, not far above the $183-186 a tonne a week earlier.

"The growth so far is limited and does not reflect the rapid increase in futures quotations at the end of the week," SovEcon said.

'Underpinning Black Sea competitiveness'

While the Moscow-based consultancy proposed that Russia values might crack, in terms of facing a "significant increase" thanks to the rallies elsewhere, some investors pondered whether instead European values may be pulled lower by Black Sea supplies.

"Russian wheat prices soared but less than observed on futures markets or on the physical ones in Western Europe," Agritel noted.

"This is underpinning the competitiveness of Black Sea origin" wheat.

As an extra setback to European futures, Agritel said that "in France, drier weather conditions are expected, and this could allow combine harvesters to go back to the fields".

Futures struggle

Still, with the euro easing a touch against the dollar, a support for the value of euro-denominated exports, Paris wheat for December did manage a positive closing, adding 0.1% to E185.75 a tonne,a 20-month closing high for a nearest-but-one contract.

That helped London wheat for November end 0.2% higher at £151.50 a tonne, closing at the highest since May 2014 for a nearest-but-one contract.

(London prices have been supported over the past year by the weakness of sterling, besides by a tight domestic balance sheet and, more recently, the global rally.)

Rapeseed rises

In the oilseeds complex, rapeseed futures for August fared better, closing up 0.8% at E369.00 a tonne, the contract's best close in approaching two months.

While the prospect of heat in the Midwest is stealing attention in the oilseeds complex, rapeseed has some bullish storylines too, given dryness in parts of Canada (the top exporter of rapeseed variant canola) and Australia, another major shipper.

In the EU itself, Strategie Grains on Monday lowered by 200,000 tonnes to 21.12m tonnes its forecast for the bloc's harvest this year.

"Losses this month mostly stem from France and Central Europe, although prospects are good in the South East of the EU, where the harvest is about to begin," the analysis group said.

"The field results in the weeks ahead will hence have to be watched closely."

Cocoa cools

Among soft commodities, London-traded white sugar for August edged 0.7% up to close at $412.10 a tonne, helped higher by a reduction by Datagro to its estimate for the world sugar production surplus in 2017-18.

The group trimmed its forecast by 50,000 tonnes to 590,000 tonnes, although it also reduced its estimate for the output deficit this season to 5.17m tonnes.

But cocoa for September eased by 0.7% to £1,528 a tonne, weighed by official data showing deliveries of beans from producers to Ivory Coast ports at 1.86m tonnes for 2016-17 up to the end of June (ie, the first nine months of the season).

That represented a rise of 34% year on year, and well above the figure of 1.69m tonnes that merchants had expected.

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