EU Grains Mixed As Market Ponders What's Next For Ukraine

14/03/14 -- EU grains closed mixed on the day, and mixed for the week, with Mar 14 London wheat unchanged at GBP166.80/tonne, whilst new crop Nov 14 was GBP0.50/tonne lower at GBP159.35/tonne. May 14 Paris wheat closed unchanged at EUR211.50/tonne, Jun 14 Paris corn was up EUR0.50/tonne to EUR186.25/tonne and May 14 Paris rapeseed rose EUR2.00/tonne to EUR402.50/tonne.

For the week, that puts Mar 14 London wheat GBP2.15/tonne firmer, with Nov 14 adding GBP3.60/tonne. May 14 Paris wheat fell EUR3.75/tonne, Jun 14 Paris corn rose EUR2.25/tonne and May 14 Paris rapeseed fell EUR9.25/tonne versus last Friday's close.

The trade is uncertain whether the recent price spike is fully justified by the problems between Russia and Ukraine, or whether things may have got overdone. Certainly there's been a flood of fund money pouring into the sector in recent weeks, which has contributed to this latest rally.

Tonight's Commitment of Traders report shows fund money in Chicago wheat is now sitting on a net long of more than 10,000 contracts (versus a short of around 6,000 last week) as of Tuesday night. They are also now net long more than 200,000 lots in corn, and approaching that number in soybeans.

A big weekend looms in Ukraine, with Crimea looking almost certain to vote in favour of going back to being part of Russia, whether the West say it's legal or not. Ousted Ukraine pro-Russian President, Viktor Yanukovych, won around 82% of the Crimean vote back in the 2010 elections.

The question to ask after that is what comes next? Violence has now spread to other parts of the the country, including Donetsk (where Yanukovych won more than 96% of the 2010 vote) and Kharkiv (around 70%). The Russian Foreign Ministry said today that they "reserved the right to take (Russian) people under it's protection" in these regions, which sounds like staging a repeat performance of what happened in Crimea a couple of weeks ago.

If Putin stops at Crimea, then the real impact on world grain markets should be minimal, and the 20% rise in the price of wheat that we've seen in Chicago since the Russian invasion took place is indeed an over-reaction.

If not then we might see Ukraine, almost literally, ripped in half. A glance at this map Ukraine shows the clear split between the pro-European and pro-Russian parties at the last election, and where wheat and corn are grown. Note that Russia re-taking the pro-Russian east and south would also conveniently give then full control of the Black Sea ports, and divide the arable land area up almost in half. What's left of Ukraine would be land-locked.

Meanwhile, early spring planting in Ukraine goes on, amidst all the uncertainty. Planting has been completed on around 306k hectares, about 11% of the planned early spring area (which excludes corn and sunflowers), made up mostly of barley (221k ha).

Ukraine agronomist Mike Lee tells me that "Winter crops are looking well, spring has arrived early and as each day goes by the risk of frost damage diminishes. It is dry, very little snow this winter meant there has been very little snow melt to recharge soils. On top of that we have not had much rain. At this stage it is starting to impact on shallower rooted cereals with deeper rooted oilseed rape still OK. I expect we will see rain soon as the weather usually balances the budget so I don't anticipate any problems come planting in April and May."

"Cash is in short supply and credit terms are becoming tighter so I see plantings being down and what is planted receiving less inputs, particularly fertiliser," he adds.

In other news, spring also appears to have arrived early in Europe, and fieldwork is active. FranceAgriMer said that 99% of the French winter wheat crop is tellering versus 90% this time last year. They said that 19% of the crop has an ear of at least 1cm versus only 2% a year ago. Winter wheat rated good/very good was pegged at 75%, up a point on a week ago, and versus 67% a year ago.

French winter barley rated good/very good was unchanged on a week ago at 71%. Spring barley plantings are ony 20% done versus 52% this time last year.

Agrimoney reported that the weaker pound versus the euro this week allowed UK feed wheat to trade into the near continent.

Ensus are said to be taking scheduled down-time after trialling a 70:30 corn/barley mix with zero wheat inclusion.