U.S. wheat futures fell 4.3 percent on Monday, extending their losses to nearly 12 percent in two sessions as traders take profits from a near-doubling in prices in just over a month.
With a key U.S. Department of Agriculture stocks and production report out on Thursday and the impact of a Russian decision last week to ban exports still to be felt, the market looks set for another volatile week.
Obviously the market is very unsure as to where it needs to be trading, said Malcolm Bartholomaeus, a market analyst for Melbourne-based Callum Downs Commodity News.
Chicago Board of Trade wheat for September delivery dropped 4.34 percent to $6.94- per bushel by 0300 GMT, adding to a 7.6 percent fall on Friday. The December contract dropped 4.01 percent to $7.25.
December wheat jumped to $8.68 on Friday, the highest price since August 2008, after Russia suspended grain shipments on Thursday due to its worst drought in over a century.
However, the front month remained below a record $13.34- per bushel set on February 27, 2008, when fears of a global food crisis roiled the markets, and pulled back sharply later in the session on Friday. Monday's loss make the two-day percentage fall the sharpest since March 2008.
Heavy world wheat stocks continue to provide a counterbalance to worries about lower crops in the Black Sea region.
Projections by the U.S. Department of Agriculture for 2010/11 world wheat end stocks, at 187 million tonnes, remain one-third higher than in 2007/08, with fresh estimates due on Thursday.
Fundamentals don't necessarily support the strength of the rally to date. Although pricing is not a lot different to what we were seeing in July and August in 2007, the fundamentals in 2007 were a lot tighter than they are now, said Bartholomaeus.
He said the Friday December high of $8.68 could represent a ceiling on prices if there were no more weather shocks.
Rabobank is forecasting an overall fall in global wheat production in 2010/11 to 644.2 million tonnes, from 679.8 million tonnes a year earlier.
Crops in Ukraine and Kazakhstan have also been severely hit by drought, while major exporter Canada was forced to cut back acres because of excessive rain at planting time.
Attention is now turning to other major exporters, including Australia, the world's fourth-largest exporter, where the 2010/11 crop is estimated at around 22 million tonnes, up from 21.7 million tonnes in 2009/10.
Estimates for the Australian crop remain vulnerable to downgrades because of dry weather in Western Australia, which exports 40 percent of Australia's wheat.
Tom Puddy, head of grain trading at Western Australian grain firm CBH Group, said the state could struggle to harvest 6 million tonnes, down from 8.2 million tonnes in 2009/10, unless sufficient rain was received in the near term.
Everyone is now looking at the Australian crop and our crop in Western Australia is really struggling, said Puddy.
CBOT corn for September delivery fell 0.06 percent to $4.04- as promising crop weather in the U.S. Midwest boosts chances of a bumper 2010 crop. The harvest month December contract fell 0.18 percent to $4.19-1/4.
Soybeans for August delivery rose 0.64 percent to $10.65- ahead of Friday's expiry, while the September contract rose 0.96 percent to $10.49 per bushel, helped by strong export demand.
(Editing by Ed Davies)