The best hope for wheat prices holding onto their gains may lie in corn, which is placed for a "significant rally" thanks to tighter US supplies, the Canadian Wheat Board has said.

US corn stocks were "approaching critical" levels in being forecast to end 2010-11 at 1.37bn bushels, the grain marketing giant said.

"Only exceptional yield results or rationed demand will keep supply concerns from motivating a significant rally," in corn prices, the board said.

Indeed, US corn supplies were tighter than four years ago, when they proved "a major catalyst for the 2007-08 grains complex rally".

The board added: "The US corn supply-and-demand balance may yet provide momentum for a sustainable rally [in wheat]."

'Floating money' 

Without corn, wheat prices could face downward pressure, the CWB said, noting that crop woes in Canada, the European Union and Russia looked likely to be largely offset by a bumper harvest in the US.

The forecast of 1.09bn bushels for America's wheat inventories at the end of 2010-11"most likely represents the largest free stocks, as in stocks accumulated without benefit of direct government incentive, of all time", the board said.

"Even given the declining fortunes of Russia and Kazakhstan, world ending stocks will decline by less than 10% and remain historically high at more than 175m tonnes."

Furthermore, the cash attracted into grain markets, and which had "bid the wheat markets beyond the current fundamental", was in part "floating" money.

"The risk going forward is that perception flips back to negative and the futures markets retreat."

Mixed prices

Separately, Rabobank said it was switching its price outlook from a "neutral to bullish bias" for 2010-11, Citing the threat of further crop downgrades.

"We do feel there is enough evidence to suggest risk in teh grain markets is skewed to the upside from current levels," the bank said.

And wheat prices made further gains in Europe on Friday, with Paris's November lot closing up E1.00 at E178.75 a tonne, and its London equivalent edging £0.25 higher to £132.75 a tonne.

However, US markets were mixed, with Chicago's September contract settling 0.25 cents lower at $5.96 ¼ a bushel thanks to a late decline blamed on profit taking.

Its Kansas equivalent finished up 3.25 cents at $6.14 a bushel, while in Minneapolis, the home of spring wheat trading, the September lot closed up 6575 cents at $6.28 ½ a bushel.