A drought in Eastern Europe has caused the price of wheat to  rise more than 60 percent since June, hitting a two-year high.  Now market participants will await the outlook from the U.S. Department of Agriculture, which will release its world crop report on Thursday, August 12. Analysts expect the USDA to trim its estimate back a bit.

Extreme heat and fires this summer have spread in Russia, a major producer and exporter of wheat. Last week, Russia announced it would ban exports, sending wheat limit up at the Chicago Board of Trade. Ukraine has since announced it would consider a wheat export quota as well.

Prices spiked above $8 a bushel, not seen since the big bull run of 2008, but quickly corrected back a bit back, with the September futures contract currently hovering just below $7 and the December contract slightly above. On August 6, a record 354,169 futures and options contracts were traded on the CBOT.

Mario Maselli, a Senior Market Strategist at Lind-Waldock based in Montreal, said the rally in wheat is unlikely to test 2008′s levels in the teens, and has likely peaked. “In my opinion, the move is overdone. The fact remains that there is still plenty of wheat in other worldwide markets, including North and South America, Australia, and Western Europe,” he said.

Maselli said a range of $5 – $7 seems more reasonable for wheat, and that much of the buying wave came from speculative traders. “Ultimately, supply and demand will rule,” he said.

U.S. Secretary of Agriculture Tom Vilsack said global stocks of wheat remain “robust“ enough to offset the effects of falling production in Russia.

“There are other countries, including the U.S., where wheat production is steady and relatively robust enough not to put us in a situation where we were several years ago, where there was a potential shortage globally,” Vilsack said.

You can hear more of Mario’s commentary on wheat in our Markets on the Move webinar recorded on Tuesday, August 9.

Mario Maselli is a Senior Market Strategist based in Montreal with Lind-Waldock. He is accepting new clients from Canada and can be reached at 514-866-1858 or via email at mmaselli@lind-waldock.com.

The data and comments provided above are for information purposes only and must not be construed as an indication or guarantee of any kind of what the future performance of the concerned markets will be. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. Futures and Forex trading involves a substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. Please carefully consider your financial condition prior to making any investments. Not to be construed as solicitation.

Lind-Waldock, a division of MF Global Canada Co.

MF Global Canada Co. is a member of the Canadian Investor Protection Fund.

(c) 2010 MF Global Holdings Ltd.

Futures Brokers, Commodity Brokers and Online Futures Trading. 123 Front St. West, Suite 1601, Toronto, ON M5J2M2. Toll-free 877-501-5463.