Wheat prices face "considerable downward pressure" as heavy global inventories, and better crops in some southern hemisphere producers, erode concerns over weaker Black Sea harvests.

Prices of the grain will in 2010-11 average 2% less than those the previous year, despite this month's spike which has driven Chicago wheat back above $6 a bushel for the first time in more than a year, and sent London and Paris contracts to their highest for nearly two years, National Australia Bank said.

"Despite recent improvements in the fundamentals driving prices, NAB expects wheat prices to remain weak, albeit at a level higher than expected a few months ago," the bank said in a report.

The forecast reflected growing hopes for Australia's crop, which looks on track to hit 22.3m tonnes, a year-on-year increase on NAB estimates, if not those of some other observers.

"The outlook for wheat production in Australia is looking positive," the report said.

"Widespread rainfall over the eastern states between March and May [has] led to one of the best starts to the winter cropping season in many years," with July bringing some moisture to parched Western Australia too.

'Bad news for exporters'

NAB also took a more upbeat view of Argentine production than many other observers, who have warned over the impact of a cocktail of extreme dry and wet weather on wheat growing areas.

The country's farm ministry restated on Monday that wet soil and cold weather were holding back sowings, which are, nonetheless, expected to rise to 4.25m hectares from a multi-decade low of less than 3.5m hectares last year.

"Argentine wheat production could reach 12m tonnes in 2010-11, allowing the government increase its export target to 6m tonnes," NAB said.

"This is bad news for exporters globally, as Argentina is traditionally seen as a discounter in the market."

'Subdued' trade 

With world wheat inventories remaining at relatively high levels, providing a "buffer against any production shortfalls over the short-term", global trade in the grain would remain "relatively subdued" in 2010-11.

"Despite the recent rally in wheat futures… we expect there to be considerable downward pressure on prices over the medium term," the bank said.