Wheat prices dropped to their lowest this year after the US raised hopes for global production despite warning that drought had cut hopes for Russia's harvest.

September wheat tumbled to $4.76 ¼ a bushel in Chicago, a level not seen for a near-term contract since December, with European contracts also lower.

Paris milling wheat for November slipped E2.25 to E128.50 a tonne. Its London feed wheat counterpart touched £97.00 a tonne, matching 2009 lows set in June.

The declines followed the US Department of Agriculture's latest monthly report on global crop supply and demand, which raised by 2.8m tonnes to 659.3m tonnes its forecast for global production in 2009-10.

However, wheat recovered in later trade, a revival credited in part on a jump in oil, an important indicator for grains used for making biofuels. 

'Extended heat' 

The increase reflected bigger hopes for crops in the European Union, India and the US, where Northern Plains states were on course for "sharply higher expected yields".

A rise of 1.6m tonnes, to 136.3m, in hopes for the EU crop reflected a higher estimate for Germany, "better-than-expected yields for France and rising prospects for harvested areas and yields for Poland", the report said.

With India on course for an 80.6m tonnes harvest, 3m tonnes more than expected last month, the increases would more than offset a decline of 4.5m tonnes in forecasts for Russian production.

"Dryness and extended heat during July sharply reduced yields in the Southern and Volga districts," the USDA said, adding that similar conditions had trimmed hopes for Kazakhstan's harvest too.

The report estimated stocks at the end of next May at 183.6m tonnes, 2.3m tonnes more than previously expected.

Price recovery