Wheat prices have gained over the past week, as drought concerns in South America raise the prospect of a drop in supplies from that region.
 
Areas in Brazil and Argentina, two major producers, are likely to only receive limited rainfall, continuing the relatively dry period that has seen crop yields suffer. As a result, a ‘weather premium’ has entered markets, helping wheat prices to make back some of the ground lost in November. The sharp move upwards this week has been intensified by short covering, as traders scrambled to buy back their short positions and lock in profits. However, the decline in this commodity might get underway again as 2011 turns into 2012, with snowfalls in key US growing regions providing sufficient moisture to sustain current crop levels.
 
Some of this was seen yesterday, as prices eased slightly even as other global markets went on a Santa rally, sparked by better US data and a decision by the ECB to provide banks with cheap liquidity, allowing European financial institutions to purchase plenty of peripheral European debt. It is axiomatic to observe that volumes are thinning out as Christmas looms, with some grain exchanges now closed until 2 January 2012. Wheat prices have steadily lost ground throughout 2011, with occasional rallies doing little to halt the steady downtrend, so traders will be looking out for any signs of a turnaround in the New Year.