Investment bank Goldman Sachs said on Friday that it saw growing potential for rising wheat prices in the coming months due to continued dry weather in countries like Argentina, India, Australia and the former Soviet Union states.
The bank told clients in a note that production in these countries will likely be well below the current forecasts by the U.S. Department of Agriculture.
Goldman said it had closed its short Chicago Board Of Trade wheat versus corn trade at a value of 72 cents per bushel on Thursday, below its entry level of $1.21, for a gain of almost 50 cents.
The news helped to rally CBOT wheat futures, with the September contract up 1.4 percent at $8.76-3/4 per bushel at 1432 GMT.
Chicago wheat futures have rallied 40 percent since mid-June with the expansion of a drought in the Midwest farm belt that is now the most extensive in 56 years.
The drought has decimated the U.S. corn and soybean crops, rallying prices to record highs on July 20.
Wheat has also found support on trade expectations for a drop in production in Black Sea wheat exporters like Russia, sparking speculation of possible export curbs by the country -- something that has been rejected by the government.
Goldman, however, said that beyond the near-term upside risk to wheat prices, "we continue to expect that barring severe production losses in these key producing regions, wheat prices will underperform corn prices over the next 12 months."
It said the even assuming production in these countries was 15 million tonnes below the USDA's July forecast, global wheat inventories would still remain 32 million tonnes above global corn inventories, excluding China and India.
This is down versus the past three years but well above the 2005-2009 period, the bank said.
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