Ukraine Tensions Ease, Grains Drop

March 4, 2014 12:10 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading 3 to 6 cents lower, soybeans are fractionally to 2 cents higher in old-crop contracts and fractionally to 1 cent lower in new-crop contracts, SRW and HRW wheat futures are 6 to 8 cents lower and HRS futures are steady to fractionally higher. Cattle futures are mixed in electronic trade, while hog futures are under pressure.


* Ukraine fears ease. Tensions in Ukraine have eased and much of the strong, initial market response from yesterday has dissipated. Wheat and corn futures were supported yesterday by concerns the situation in Ukraine could slow grain trade from the Black Sea region. But both markets ended well off their highs and are slightly lower overnight. That signals concerns have eased. Despite the presence of Russian troops and warships in Ukrainian territory, grain firms in the Black Sea region signal operations remain normal.

The long and short of it: Traders realize it would take an extended and escalated flare-up in the Black Sea region to have major impacts on grain trade. Attitudes in the grain markets have improved, but I'm still in the camp that price strength needs to be viewed as a selling opportunity.

* HRW wheat conditions continue to deteriorate. According to state reports, the condition of the HRW wheat crop declined further in Kansas, Oklahoma and Texas through February. The Kansas HRW crop is now rated 22% "poor" to "very poor," up 2 percentage points from the beginning of February, while 34% of the crop is rated "good" to "excellent," down 1 point from last month. When the Kansas crop went dormant, only 4% was rated in the bottom two categories while 63% was rated "good" to "excellent." In Oklahoma, 31% of the crop is rated in the bottom two categories versus 24% to start February and 31% is "good" to "excellent," down 5 percentage points from last month. USDA's final ratings last fall pegged the Oklahoma crop at just 5% "poor" to "very poor" and 67% "good" to "excellent." In Texas 46% of the crop is rated "poor" to "very poor," up 5 points from last month, while 15% is "good" to "excellent," down 4 points from the beginning of February. At the end of November, the Texas crop was rated 28% "poor" to "very poor," while 32% of the crop was rated in the top two categories.

The long and short of it: Harsh winter conditions and ongoing drought in Texas have taken a toll on the HRW crop. A slow spring thaw is needed through the Plains so the crop can benefit from melting of remaining snowcover. Plus, a rapid greenup could make the crop vulnerable to winterkill if temps turn cold again.

* COFCO looking at buying Noble's grain arm. COFCO, China's largest grain trader, is in talks to potentially buy Noble Group's agribusiness arm, sources familiar with the talks told Reuters. Noble handles grains and oilseeds (wheat, corn, barley, soybeans), coffee, cocoa, sugar, cotton and fertilizer, with operations in South America, Middle East, Europe and Asia. Last week, COFCO bought a 51% stake in Dutch grain trading firm Nidera last week.

The long and short of it: China is obviously trying to grow its presence in the global grain trade business with a goal of greater food security.


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