Wheat prices rallied on Tuesday as Australia slashed the forecast for its drought-hit crop by a staggering 31 per cent, but profit taking and improved seeding weather in the United States pared gains.
Futures had jumped to all-time highs this month in the United States and Europe, amid the smallest global surplus of wheat stocks in about 30 years.
High prices, however, have not slowed the relentless buying by importing nations.
The Federal Reserve cut benchmark US interest rates by half a percentage point to buffer the economy from a slump in the housing sector and calm financial market turbulence, but the announcement came right at the closing bell at the Chicago Board of Trade (CBOT).
CBOT wheat got off to a flying start during overnight hours as major exporter Australia cut its crop estimate to 15.5 million tonnes from 22.5 million in June.
"The ABARE number at 15.5 million didn't really impress the wheat market ... we did rally 30 cents going into it," said Jerry Gidel, analyst with North America Risk Management, of CBOT December wheat rising by the daily limit on Monday.
The sharp reduction surprised some traders, who had expected the Australian Bureau of Agricultural and Resource Economics (ABARE) to turn in a conservative downward revision.
But others had expected the Australian wheat crop to be around 15-16 million tonnes, and they saw little reason to push prices up further.
"It started with wheat. We always try to figure out how much bullish news is dialled in. We had a low production number out of ABARE and still had a dry weather forecast ... we couldn't react to them," said Don Roose, analyst with US Commodities.
CBOT December wheat ended 6 cents lower at $US8.69 per bushel after hitting an overnight high of $US8.98.
In Europe, benchmark November on Euronext milling wheat futures ended 1.75 euros higher at 265.25 euros a tonne after rising to a high of 269 euros.
Concerns over the Australian wheat crop had pushed Chicago and European wheat futures to all-time highs.
The record high in Chicago was $US9.11-1/4 hit on September 12 and the 300 euros mark in Europe touched on September 5.
Australia is normally the world's number two wheat exporter after the United States.
"Markets can test $US9 again amid tight supply and strong demand," said a Seoul-based trader.
But many European traders said the market had already priced in an Australian crop of 15 million tonnes and only a revision below that could push prices back to historic highs.
"The forecast is lower than expected but still above the one we were working on," one European trader said.
On the demand side, the Trading Corporation of Pakistan (TCP) will issue a tender this week to import up to 500,000 tonnes of milling wheat, a senior official said.
The government said last week it had decided to import 1 million tonnes of wheat to maintain a buffer stock.
In Indonesia, a US industry consultant said imports of US wheat could increase 10 per cent in 2007/2008 from the previous season because of tight supplies from Australia.
Japan's Ministry of Agriculture said it was looking to buy 115,000 tonnes of milling wheat from the United States and Canada at a regular tender closing on Thursday.
Taiwan's Flour Mills Association will hold a tender on Thursday to buy 88,000 tonnes of US wheat in two shipments between October 22 and November 18.