16-04-2014 08:56 AM | Arable, Cereal, Crops, Market Reports, News

Speculative money moving into grains on back of Ukraine situation



EU grains closed generally firmer, with. May 14 London ending GBP0.15/tonne higher at GBP169.40/tonne, and new crop Nov 14 finishing the day GBP1.30/tonne higher at GBP160.05/tonne. May 14 Paris wheat closed up EUR7.25/tonne at EUR221.25/tonne, Jun 14 Paris corn was up EUR0.25/tonne to EUR189.25/tonne and May 14 Paris rapeseed was EUR3.25/tonne higher at EUR419.75/tonne.

This was the highest close for a front month on Paris wheat since last May.

Once again fresh fundamental news was relatively lacking, the recent rally seems to be mostly about speculative money moving into grains on the back of the Ukraine situation.

One report I read yesterday also suggested that "fund managers believe that the weather problems in 3 out of the past 4 years will again surface this summer and no one wants to miss it."

How things have changed, 2013 ended with fund money staging their longest unbroken exodus from the grains market, and now they are piling back into it.

Chicago fund corn positions "went from short 50k just a couple of months ago to long 250k currently on not much news and corn rallied $1.00. Just think what will happen if we get a normal weather pattern. Funds could actually flip their corn position," one analyst observed.

Current spring grain plantings in the FSU are well advanced versus a year ago. Russia is planted on 2.1 million ha (6.4% of plan) versus 1.9 million this time last year. Belarus is done on 900k ha compared to only 6.5k ha this time in 2013. Late last week the Ukraine Ministry said that they were almost done planting early spring grains (excluding corn etc).

APK Inform left their estimate for grain production in Ukraine unchanged at 57.3 MMT, despite a "worsening political situation", although that's still a 9% decrease on last year's record. They have winter grain output at 21.8 MMT versus 25.4 MMT last year, and the spring crop at 35.5 MMT compared to 37.7 MMT last year.

The Ukraine Ministry said that the country had exported almost 28.5 MMT of grains so far this season, up 35% on a year ago, including 8 MMT of wheat, 2.15 MMT or barley and over 18 MMT of corn.

Egypt said that they have enough wheat bought to last them through to Jun 19.

Jordan bought 150 TMT of wheat for Jul/Aug shipment. Although the origin is optional, the wheat is most likely to come from the Black Sea, with one of the two sellers being Romanian.

The bulls would like to say that the recent rally is only returning the market to "more realistic" levels. Buyers would argue that but for the intervention of Big Bad Vlad we'd now be below £150/tonne on new crop London wheat.

Which viewpoint ultimately proves to be correct only time will tell. Certainly predicting where we will be as regards to Ukraine is concerned a few months from now is a very difficult one to call. It should be remembered though that this is a spec-led rally that has little to do with current fundamentals of supply and demand.

A sudden piece of unexpectedly bad news, China maybe the most likely culprit to supply it, could spark another mass exodus from the recently built large spec longs that fund money now holds in wheat, corn and soybeans.

On the other hand, another serious summer drought in the US could ignite and even larger "feeding frenzy" than the one we've just seen. The casino mentality continues....

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