Wheat prices rallied on Thursday, lifted by expectations that drought may force Russia to return to significant grain imports for the first time in a decade and by a large order of the grain by Egypt.

Chicago wheat regained $7 a bushel at one point as Egypt, the world's biggest wheat buyer, announced it bad bought 240,000 tonnes of Canadian and French wheat at $280-291.32 a tonne.

The purchase gave an "element of fulfilment" to investor hopes that buyers of the grain could be found even at current levels, David Sheppard, managing director at UK grain merchant Gleadell, told Agrimoney.com.

The order, the second this week, was also larger than many traders had expected, after Egypt last time bought only 55,000 tonnes of US hard red winter wheat.

Furthermore, the US Department of Agriculture reported 1.4m tonnes in weekly American export sales of wheat, 200,000 tonnes more than the most optimistic analysts had expected, indicating that buyers appeared to following the script of switching to other exporters from the drought-struck former Soviet Union.

Return to imports

The data added fuel to a rally sparked early by reports that Russia, the world's third-largest wheat exporter last year, may have to buy in 5m tonnes of foreign grain in 2010-11.

Imports at the reported level would be the highest since 1999, before the country began its transformation into a grain powerhouse.

Last year's wheat production of 61.7m tonnes was twice that of a decade before, although the harvest this year is expected to plunge to about 45m tonnes, ravaged by the country's worst drought on record.

'Helping Peter to rob Paul'

While neighbouring Kazakhstan lifted hopes for its grain exports by 2m tonnes to 8m tonnes in 2010-11, the revision was insufficient to take the heat out of prices, which soared nearly 7% in Chicago at their day high.

"While [Russia's] imports should be sourced from the Ukraine and Kazakhstan, EU traders point out that 'helping Peter to rob Paul' could further limit exports... from these states" to buyers outside the region, Gleadell said.

Chicago's September contract closed 3.9% higher at $6.81 � a bushel.

In Paris, the November contract ended up 3.5% at E212.75 a tonne, while London's November feed wheat lot, recovering from its lowest close of the month in the last session, added 3.2% to �151.25 a tonne, despite a jump in pound following upbeat UK retail data.

Separately, official data showed stocks of home-growth wheat at UK ports at 719,000 tonnes as of the end of June, down 19% year on year.

Levels of wheat stored in farm silos in England and Wales slumped by 39% to 689,000 tonnes. The data were viewed as in line with expectations.

'Better sowing conditions' 

Kazakhstan said it expected to export 4m tonnes of grain to Central Asia, 2m tonnes to the Caucasus and Russia and 2m tonnes to Iran.

The country's relatively buoyant export hopes, given that it too has also been struck by drought, have been helped by its small livestock sector, which makes it a lower-intensity consumer of grain, and healthy stocks left over from last year's bumper harvest.

In other potentially negative news for prices, temperatures have fallen in Ukraine, which has also received rains in some dry areas.

"Wet weather may improve sowing conditions for winter," Agritel said.

The Paris-based consultancy, on prices, added: "The upward trend of recent weeks has been damaged but the market is consolidating."