Wheat retreats from $7, as broker cautions tell

by Agrimoney.com

Wheat futures hit $7 a bushel in Chicago only to close sharply lower, as momentum from fund buying ran into caution that fears over the Ukraine crisis, viewed at the centre of the price rises, may be being overplayed.

Chicago wheat for March hit $7.00 3/4 a bushel, the highest for a spot contract since October, before reversing to close down 1.3% at $6.79 a bushel.

Wheat for May, the best-traded contract, hit $6.96 1/2 a bushel before retreating to end at $6.73 3/4 a bushel, down 1.5% on the day.

Chicago wheat did worse, dropping 1.5% to $6.73 3/4 a bushel for May, and by 1.3% to $6.79 a bushel for the March contract.

In Paris, the May contract hit E216.00 a tonne, its best for nigh on a year, before paring gains to close down 1.0% at E213.50 a tonne.

'Political crisis'

The early gains were widely attributed to concerns over the threat of Ukraine's crisis to its grain export prospects, besides a dearth of rain for winter wheat seedlings in the US southern Plains too.

"The political crisis in Ukraine and the dryness affecting US winter wheat production is providing support," Paul Georgy at Chicago-based broker Allendale said early in the day.

However, the headway defied a series of cautions that fears over Ukraine may be overdone for now.

'Attractive opportunities to sell'

UkrAgroConsult, the Kiev-based analysis group, said that while 5-10% of Ukraine's grain exports are handled in Crimea – the region invaded by Russian troops, and at the centre of the country's political turmoil - the impact on shipments is likely to prove limited for now as most of the volumes have already been cleared.

At Commonwealth Bank of Australia, Luke Mathews said that "there is only a small probability that Russian-Ukraine tensions cause a meaningful disruption to grain trade from the Black Sea region", viewing prices as offering "attractive opportunities" for domestic producers to sell at.

"The US Department of Agriculture this week confirmed global grain supplies are currently comfortable," he added.

At FCStone's Dublin office, Jaime Nolan Miralles warned that the wheat price may be "divorcing itself from direct wheat/market fundamentals, and I would caution bulls' temperament under such an environment.

While Ukraine remains a "wild card" for the market, especially with a controversial poll on Crimean secession due this week, "if escalation is not the end result there, it is difficult to see where this short term bull run will find its next feed from".

Importers shifting?

Rabobank stuck by a "bearish outlook" for wheat prices in the second half of this year, cautioning that "favourable conditions for most of the major wheat growing regions through the Black Sea and European Union" would spur a 20m-tonne rise in world inventories of the grain – although many commentators have a more conservative estimate.

However, Commerzbank highlighted the potential for worries over Ukraine exports to drive buyers to other markets.

"Uncertainty over the availability of wheat from Ukraine points to higher demand for wheat from the EU and the US, something that is likely to be confirmed by the export figures due to be published today," the bank said.

In fact, US export sales last week fell 14% week on week to 477,000 tonnes, the US Department of Agriculture said, a figure viewed broadly as neutral.

A UK grain trader told Agrimoney.com: "The speculative money still has plenty of scope for putting more cash into the market.

"Wheat has been the one grain in which hedge funds have had a net short. They are way off any kind of net long position which might look like they had overegged the pudding."

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