CHICAGO, ILLINOIS, U.S. — CBOT front-month wheat futures prices increased by 8% over the July 3-Aug. 2 review period to close at $8.60 per 60 lb bushel.

Wheat futures rose by 12% July 3-16. Wheat climbed on the back of a drier forecast for the U.S. and Russia. Rumors that the coming Russian wheat output could be 30% lower than that of the previous year prompted strong buying activity from both commercial and speculative buyers. In addition, U.S. Department of Agriculture's (USDA) World Agricultural Supply and Demand Estimates report, released on July 12, downgraded global wheat stock projections by three million tonnes for the 2012-13 season. This was the result of lower output projections for Argentina, Australia, Russia, Kazakhstan and Ukraine. Furthermore, ending stocks of wheat were projected to diminish on the back of stronger demand for cattle feed. This is because high corn prices are making wheat look more competitive to farmers that use grains as a feed input for their herds.

CBOT wheat front-month futures prices declined by 4% July 16-24. On the one hand, weather models continued to show extreme dry weather conditions in the U.S. Corn Belt, providing support for grain prices. On the other hand, a stronger dollar environment and increased concerns about the economic situation in the euro area hampered appetite for risk and increased the cost of speculative investment. In addition, traders shortened (sold) some of their open grain positions to cash in previous gains in a usual post-price surge profit-taking exercise.

Wheat futures rose by 6% July 24-30, reversing the losses of the previous week. Wheat prices surged in the wake of news that more agricultural regions in Russia had been declared emergency areas due to the recent drought. Russia accounts for around 10% of global wheat exports and fluctuations in its grain output typically have strong repercussions on international markets. Furthermore, wheat prices were underpinned by strong tendering demand from Middle Eastern countries, especially Morocco and Libya. Futures declined by 5% July 30 - Aug. 2 as a result of easing concerns on a potential export ban in Russia. Russian official output estimates, released on Aug. 1, were higher than expected, which prompted short selling by grain traders.

Long-term traders planning to go short (sell) in September might opt to hedge against risk through put options (right to sell) within the $8-$8.50 per 60lb bushel price range. Day traders taking binary bets should pay attention to existing high volatility, with spreads between high and low prices peaking at 3% on July 5. Wheat buyers focusing on the cash market should be wary of spot price hikes during August given the current volatility in weather projections.