U.S. grain and soybean futures rallied on Wednesday, led by a 3.5 per cent jump in wheat prices, as speculators waded back into the market with a renewed focus on a global supply shortage after a selloff from the summer peaks.
Wheat snapped a five-session losing streak on expectations that drought will force Russia to curb wheat exports, which could help divert demand to the United States, the world's top exporter of the grain.
Corn, which also broke a string of five straight losses and surged back above $8 a bushel, and soybeans received additional support from the heavy rains that arrived with Hurricane Isaac. The rains are expected to do little to boost crop yields but may delay the harvest of drought-stricken crops.
Grains bucked a downward trend in commodities that saw crude oil and gold futures weaken. Wheat's rally was its biggest in more than six weeks and pushed the front-month contract through key technical resistance points at its 40-day moving averages.
"There is concern that we are going to be looking at Russia possibly restricting exports here," said Dewey Strickler, president of AgWatch Market Advisors.
Cuts to Russia's export program could provide a much-needed boost to export demand for U.S. wheat, which has been too expensive to generate interest in recent months. Top buyer Egypt has passed over U.S. supplies in its last three purchases.
Prices for U.S. wheat were about $50 per ton more expensive than Russian supplies, but there was optimism that the United States could win some business in Saudi Arabia's tender on Wednesday to buy 550,000 tonnes of hard wheat from global supplies, Strickler added (all figures US$).
CBOT December wheat settled up 30-1/4 cents at $9.05-3/4 a bushel. CBOT wheat shed five per cent in the five previous sessions.
Short-covering following the decline also added strength to wheat prices. Last week, hedge funds and other large speculators held 85,852 short contracts in wheat, compared to just 54,884 in corn and 42,367 in soybeans, according to Commodity Futures Commission data.
CBOT December corn was up 18 cents at $8.13-1/2 a bushel, and CBOT November soybeans were 30-3/4 cents higher at $17.53 a bushel.
"Yesterday we dropped everything, today we are putting it back on," said Karl Setzer, market analyst at MaxYield Cooperative. "All we are doing is seeing some speculative buying showing up."
Wednesday marked the first time that corn, soybeans and wheat have risen on the same day since Aug. 21.
Hurricane Isaac made landfall and topped a levee near New Orleans early on Wednesday, triggering life-threatening flooding seven years to the day after Hurricane Katrina devastated the same area, authorities said.
Global Weather Monitoring meteorologist John Dee said the slow-moving hurricane soon would become a tropical storm and then a tropical depression. Isaac is expected to leave heavy rainfall over a broad expanse of the Deep South and central U.S. Midwest corn-, soybean-, rice-, cotton- and wheat-growing region.
Heavy rain from Isaac will stall the harvest of U.S. crops but also add valuable soil moisture ahead of autumn seeding of winter wheat, Dee said. The storm will also boost river water levels, aiding waterway transport, he said.
Traders were closely watching developments in Russia to glean insights into what the government's next step might be.
The U.S. Agriculture Department already has cut its forecast for Russian wheat exports this year to eight million tonnes from 12 million. The current estimate dropped Russia's percentage of global wheat exports to about six per cent. The United States is seen accounting for 24 per cent of total wheat exports.
"Wheat is leading the grains higher on worries over export curbs out of Russia as production numbers have been slashed over the past weeks," Joe Davis, vice president of commodity sales at Futures International, said in a research note to clients. "The Russian Agricultural Ministry meets on Friday and the possibility of cutting exports will be discussed."
A sharply reduced Russian 2012 grain crop forecast, which the government recently cut to 75 million tonnes, has sparked concerns that Moscow might ban exports.
Russia barred grain exports for almost a year in August 2010 after a severe drought. Some market observers have speculated that this year's Russian wheat harvest might fall below the crop of 2010, when it brought in 41.5 million tonnes of wheat.
-- Mark Weinraub reports for Reuters in the Chicago area. Additional reporting for Reuters by Sam Nelson.