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Wheat eclipses corn as investor's new darling

By K.T. Arasu

CHICAGO, Sept 6 (Reuters) - Love can be fleeting in the volatile commodities markets, and investors once enamored with the money-making potential of corn due to booming demand from the ethanol sector have found a new darling, wheat.

Scaling to record high prices in Europe and the United States, two major regions where the grain is produced to make bread, pastries and noodles, wheat has wrested the mantle of grain market leader from corn to help set price trends.

"It's a very interesting situation with wheat," said grains analyst Bill Nelson with A.G. Edwards. "We have the interest in wheat because of ever-changing crop weather situations. There has been a gathering of speculative interest."

Surging demand for wheat due to weather-related production problems in Europe, the United States and Australia has even rekindled memories of another milestone moment more than three decades ago dubbed the "Great Grain Robbery".

In 1972, the Soviet Union secretly bought loads of wheat from the United States, driving prices through the roof.

Russia has not been buying wheat from the United States this time around, but importers have included such rarities as Morocco and Algeria. These countries traditionally purchase from Europe due in part to lower shipping costs.

"Corn and soybeans are now often followers of wheat," Nelson said, adding that U.S. production of corn and soy this year has been narrowed to a small range by traders, taking out, for now, any surprises that can spark price rallies.

The U.S. Agriculture Department will update its monthly estimates of this year's U.S. corn and soybean production on Wednesday. Traders will also be on the lookout for any changes the USDA might make to its world wheat output estimates, especially to data on Australia.

Farmers in the United States planted more corn acres this spring than in any year since 1944, taking advantage of a rally in prices to 10-year highs of $4.37-1/4 a bushel in February.

Corn prices have fallen since then amid expectations for a record crop. Chicago Board of Trade December corn  fell 6-1/2 cents on Thursday to $3.39-1/4 a bushel.

CBOT wheat September wheat  hit an all-time high of $8.86 on Wednesday, but slipped on Thursday as investors cashed out some of their profits.

Open interest in CBOT corn futures fell by 116,519 contracts over the past month to 1,086,314 on Wednesday, while that for CBOT wheat also declined, dropping 62,172 contracts to 374,244, as the unprecedented rally in wheat blew speculators out of long corn/short wheat spreads.

Goldman Sachs said in a research note Thursday that "with inventories effectively exhausted, prices must rise sufficiently to ration demand...once the market for the current crop has cleared, the price will most likely sharply correct."

"...but it is difficult to quantify how high prices could climb in the interim," the note added.

Grains analyst Joe Victor of Allendale Inc. called Thursday's drop in CBOT wheat merely a 'breather' for a market that should stay hot.

"The fundamentals remain supportive. There is good demand out there from the international community. Morocco is buying, Japan is buying and Algeria might have bought some," he said.

But he said there was some nervousness over possible rains in western Australia. "If that starts to develop, there'll be pressure on the December (contract)."

The wheat crop in Australia, typically the world's No. 3 exporter, has been hurt by searing winds. Production estimates this year are being revised down.

Wheat from Western Australia makes up the bulk of the country's exports.

Victor said he also was closely watching developments in India, where opposition political parties have criticized the government for importing wheat.

India, the world's second-largest wheat producer, bought 795,000 tonnes of wheat on Monday after tendering for 300,000 tonnes. It imported wheat for the first time in six years in 2006, buying 5.5 million tonnes mostly from Australia.

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