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Wheat surges on Ukraine crisis

03/03/2014 @ 3:40pm

U.S. wheat futures surged 4.6%, the biggest one-day percentage gain in more than 17 months, as traders fretted that Ukraine's escalating crisis will slow grain exports from the eastern European country.

Wheat prices jumped after Russia's military appeared to tighten its control of Ukraine's Black Sea region of Crimea. The tensions led traders to speculate that buyers of wheat and corn will shift purchases from Ukraine--one of the world's biggest grain exporters--to shippers such as the U.S.

Wheat prices rose as much as 6.8% before easing in midday trading. Wheat for March delivery at the Chicago Board of Trade settled at $6.26 a bushel, up 27 cents, the highest closing price in nearly three months.

Corn futures also gained from the Ukraine unrest, finishing at their highest price in more than five months. Corn for March delivery rose 6 cents, or 1.4%, to $4.64 a bushel in Chicago.

Ukraine grain exports continued Monday despite the unrest. However, looking ahead, grain buyers that would normally consider the country for grain shipments are largely turning elsewhere, three Europe-based traders who deal in physical grain supplies said Monday. The traders said difficulty obtaining financing due to the country's turmoil is slowing business for Ukraine-based grain companies.

Together with Russia, Ukraine forms the northern coast of the Black Sea, a major shipping route for energy, agricultural products and metals. The current unrest in the Crimean peninsula, which juts into the Black Sea and is home to Russia's Black Sea Fleet, the most important naval power in the region, threatens those shipping lanes. About 10% of Ukraine's grain shipments are from ports in Crimea, while the bulk of exports are sent from Odessa and Nikolaev, according to Macquarie Securities.

U.S. Department of Agriculture expects Ukraine to be the world's fifth-biggest exporter of wheat by volume and the third-largest shipper of corn this year. The country sells much of its grain to Egypt, the world's largest importer of wheat, and to other Middle Eastern countries and Africa.

"The Russian-Ukraine issue is a thunderstorm moving through the commodities market," said Chad Morganlander, who helps oversee about $130 billion as a portfolio manager at Florham Park, N.J.,-based Stifel Nicolaus & Co. "The heightened political risk will continue to affect ag prices."

Agriculture accounts for 24% of Ukraine's total exports and contributes about 5% to the total annual gross domestic product, according to Macquarie Securities. Most of the country's wheat is grown in southern and eastern parts of the country.

Two major U.S. grain processors with operations in the Ukraine-- Archer Daniels Midland Co. and Bunge Ltd.--said Monday that their businesses weren't affected by the turmoil but that they were closely watching the situation. ADM runs an inland grain-elevator system, ports and an oilseed processing plant in Ukraine. Bunge runs grain elevators, as well as a port in Nikolaev and a crushing plant in Dnipropetrovsk. It has an office in Kiev.

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