Asian wheat importers were reluctant to commit to deals on Tuesday, as Australian cash prices eased following two straight sessions of decline in Chicago futures from two-year highs.
Buyers awaited the next update on Black Sea wheat crops and reaction from global suppliers, while analysts said the near 70 percent surge in wheat prices from June lows is unlikely to have a lasting impact on food inflation.
When I look at the damage expected out of the Black Sea as a result of the drought it doesn't seem as significant as first thought, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.
Last week the market jumped out of bed on fear and fund involvement -- I don't think the drop in production warrants the 66 percent move up (from June's low of $4.25) that we have had, he added.
U.S. wheat futures reversed early losses to post modest gains in Asian trade as the market consolidated after around a 10 percent drop in prices since Friday.
Wheat prices touched a two-year high on Friday on worries about a severe drought and export restrictions in the Black Sea region, but tumbled after investors considered the rally overdone and cashed in on their profits.
Australian cash prices have fallen around 15 percent since Friday following losses in the futures market, but traders said supplies were tight.
There was some panic after cancellation of deals but now people have become very cautious seeing the prices fall, said one Singapore-based trader.
Buyers are checking offers and looking at the deals. No one seems to be in a hurry to place orders as there is a feeling that prices will come down further.
Global suppliers canceled around 200,000 tonnes of Black Sea wheat to Bangladesh following the Russian ban, raising fears of more cargoes being dropped in the days ahead.
Chicago Board of Trade (CBOT) wheat for September delivery rose 0.28 percent to $7.14- per bushel after falling as low as $7.02- earlier.
Australian prime wheat on the east coast was quoted around A$280-A$285 per tonne, down from A$330-$A$335 on Friday. Analysts said the rally in wheat prices is not expected to stoke food inflation because of comfortable stocks, although trade barriers remained a threat.
The jump in wheat prices shouldn't have a lasting impact on inflation, as it is due to a temporary disruption in supply, said HSBC said in a research note.
Across a range of commodities, stock levels are much higher than they were two years ago following a bumper harvest last year. But hoarding and trade barriers, for wheat and other soft commodities, are a real threat.
Turkey's state grain office TMO said on Tuesday that Turkey's wheat stock was sufficient and together with this year's production it more than meets annual consumption of around 18 million tonnes.
The TMO said Turkey's 2010 wheat output was estimated at least at 19 million tonnes, down from 2009's 20.6 million tonnes.
Three South Korean millers -- CJ Cheiljedang, DongA One and Samyang -- bought a combined 23,000 tonnes of U.S. No. 1 wheat from Cargill via tender closed on Tuesday, traders said.
(Editing by Michael Urquhart)