Wheat prices are to stay above $6 a bushel for the next year, but face potential surprises ranging from Argentine dryness to European crop problems which could yet revive markets, a leading analyst has said.

The comments came as wheat's price comeback faded on Friday, undermined by improved hopes for Canada's crop and a denial by drought-struck Russia of imminent grain imports.

Luke Mathews, agri commodity strategist at Commonwealth Bank of Australia, said Chicago wheat prices were likely to fall from an average of $6.74 a bushel in the current quarter to $6.00 a bushel in the April-to-June period next year, depressed by global stocks left over after two years of bumper harvests.

"Over time, we expect global prices to downwardly adjust to these still comfortable stock levels," Mr Mathews said, adding that improving prospects for autumn plantings in the drought-stricken former Soviet Union may also weight on markets.

"The most recent weather reports suggest that the drought is easing and World Weather expects adequate planting rain to be received this season."

Two-tier market

However, this outlook was "far from certain", he added, noting Thursday's reports that Russia, the world's third-biggest wheat exporting country last year, could import up to 5m tonnes of grain in 2010-11, and the potential for further production downgrades.

Furthermore, the bank was hearing talk that "European Union export availability will not reach the US Department of Agriculture forecast [of 24m tonnes] because of production issues".

In northern Europe, rain is delaying harvesting and threatening the quality of grains already tested by dry weather in the spring and early summer, with concerns in particular over Germany, the EU's second-ranked wheat producer.

Indeed, Europe's market is developing into a two-tier affair between milling wheat, underpinned by potential quality issues, and a feed market sapped by potential downgrades of food grain and competition with a broader variety of alternatives.

"The feed grain sector remains under pressure, with compounders reluctant to commit as they analyse least-cost formulations," David Sheppard, managing director at UK grain merchant Gleadell, said.

'Holding brief' 

Nonetheless on Friday, London feed wheat for November sustained more limited losses, of 1.1% to close at �149.60 a tonne, than its Paris milling wheat peer, which ended down 1.4% at E151.90 a tonne, as the grain's two-day rally ran out of steam.

Chicago wheat for September closed 2.25 cents lower at $6.77 a bushel.

The reversals were attributed early on to investor caution ahead of tender results expected from Tunisia, and uncertainty over whether Egypt, the world's biggest wheat buyer, would announce yet another tender, as it has done in two out of the last three Fridays.

"The market is taking a little bit of a holding brief," a trader at a major European grain merchant told Agrimoney.com.

"Trading has been quiet so far. There hasn't been much in the way of fresh news, and people are watching to see what happens."

'Dishonest traders'

Official Canadian statisticians added to downbeat sentiment by pegging the country's rain-affected wheat crop at 22.7m tonnes, more than 2m tonnes more than the US Department of Agriculture had expected.

And Russia's farm ministry said that the country, which was on Thursday reported to be considering grain imports of 5m tonnes in the year to next June, would not import any in calendar 2010.

Rumours of grain imports were being spread "in the interests of a group of dishonest grain traders in order to heat up the market", a spokesman said.