March wheat was up 10 cents late in the overnight session. Outside markets are mixed to quiet this morning with a firm energy tone and weak equity markets. The rally yesterday and again overnight pushed futures to new highs for the move, as traders remained nervous over the recent surge in demand from North Africa and the Middle East and are increasingly concerned about the winter wheat crops in China and the US. The UN Food and Agriculture Organization released a rare warning about China's drought situation and the potential for significant crop damage if the drought persists for another month or if temperatures get too low. The warning came despite talk that some moisture may move into the Chinese wheat areas in the next several days, possibly because amounts are expected to be small. Traders seem to think that China could have a decent crop if the region were to receive normal rains in the next month, but they also worry that stress will become significant if temperatures turn cold or if the dryness persists. After being closed for a week for the New Year holidays, China wheat futures were up 7% overnight. This helped support the rally in US futures. India's wheat crop is expected to reach a record high 81.47 million tonnes, up from 80.8 million last year, and their stock levels are thought to be burdensome. The drier western areas of the winter wheat belt in the US did receive some snow cover ahead of the cold weather, and this is expected to insulate the crop from damage and may help ease dryness concerns. Fears of continued weather issues in the US and China plus continued strong demand news supported the surge higher in wheat yesterday. The knee-jerk reaction to the news of an interest rate hike in China was to see lower trade early, but buying emerged to support. In addition, talk of some moisture for dry crops in the US and China added to the long liquidation trend early in the day. The ability of the equity markets to hold without much downside reaction plus higher trade in metals and a sharp drop in the US dollar may have helped give the market a boost into the mid-day. Jordan bought 100,000 tonnes of US wheat, which added to the bullish tone after the weaker opening. Traders see a slight decline in ending stocks for the USDA supply/demand update for this morning. Continued strong and urgent demand from Middle East and North Africa countries has provided support. The rally pushed new crop July wheat to a new high for the move, and then another burst of buying late pushed March wheat over the February 3rd peak. Egypt and Iraq have made big purchases this week, and Turkey (300,000 tonnes), Algeria (50,000) and Bangladesh are still tendering for wheat. Traders believe Iran and Saudi Arabia may also be in the market soon. For this morning's report, traders are expecting a decline of 10 million bushels for US ending stocks from 818 million posted last month.