Wheat prices retreated from early highs on Thursday, as better hopes for the French crop offset a fresh set of gloomy numbers over Russia's grain prospects. 

Crops got off to a bright start after Moscow's Institute for Agricultural Market Studies further lowered the bar on Russia's export prospects by pegging wheat shipments at 9.5m tonnes in 2010-11, a fall of nearly one-half year on year.

It was below the 11m-tonne forecast from rival analysis group SovEcon on Wednesday.

The institute, foreseeing a 24% slump to 47m tonnes in Russia's wheat harvest, amid the country's worst drought in 130 years, also echoed concerns that the Kremlin may impose an export duty to preserve domestic supplies.

French estimate

However, profit-taking was encouraged by an estimate by French analysis group Offre & Demande Agricole that the French wheat harvest, the European Union's biggest, would come in at 34.6m tonnes.

"That's a bit more than some others have been expecting," a London analyst told Agrimoney.com, even if the figure represented a 730,000-tonne downgrade from last month's estimate.

Wheat for November closed E1.25 lower at E188.00 a tonne in Paris, after hitting E193.75 a tonne earlier, the highest for a nearest-but-one contract since August 2008.

London wheat for November ended �1.45 down at �137.95 a tonne, having earlier set a fresh two-year high for a spot contract of �143.00 a tonne.

Chicago wheat did better, with the September contract ending 2.0% higher at $6.27 � a bushel, helped by strong weekly export data.

'Double-edged sword'

The analyst added that increased interest from speculators in the Paris wheat markets, evident in rising levels of open contracts, was adding to price volatility.

"The market is certainly getting more attention from a speculative point of view, even than two years ago" when wheat prices last spiked, he said.

"But it is a bit of a double-edged sword. You get greater liquidity, which make the market more workable, but it can distort the price a little."

'Huge volumes' 

David Sheppard, managing director at UK grain merchant Gleadell, pointed to the extra volumes going through Europe's wheat markets as evidence of speculative interest.

Volumes on Paris's November contract topped 38,800 lots last Thursday, roughly six times average volumes before the price spike, on Agrimoney.com calculations.

"If you look at the volumes going through, they are huge. That isn't all commercial money," Mr Sheppard said

European Union wheat also remain competitive with US wheat, once freight charges are added in.

"If North African countries are going to have to start buying from exporters other than Russia, they are going to have to go to the EU," Mr Sheppard said.