CHICAGO - U.S. wheat prices jumped 3.4 percent Tuesday, their biggest daily rise in a month, as a weaker dollar coupled with strength in crude oil and U.S. equity markets sparked a short-covering rally.
Corn rose 1 percent. Soybeans closed firm but ended below the day's highs.
The dollar fell against the euro for a second day, spurring buying in grains, as Italy's successful completion of its closely watched bond auction calmed fears about euro zone debt issues.
“There is still optimism on Europe, even though we are far from a plan,” said Dan Cekander, grains analyst with Newedge USA in Chicago.
Data showing a rebound in consumer confidence buoyed Wall Street, and higher crude oil prices added to the momentum for soybeans and corn which are used to produce biofuels.
U.S. crude oil futures rose 1.6 percent on hope that Europe can muster an effective defense against a spreading debt crisis. The storming of the British embassy in Tehran also lent support.
Strength in the external markets helped trigger short-covering in grains after a recent slide in prices to multi-month lows.
Weekly commitments data from the U.S. Commodity Futures Trading Commission showed that noncommercial traders, a category that includes hedge funds, raised their net short position in Chicago Board of Trade wheat in the week to Nov. 22 to the widest level since at least January 2006.
The report also showed that large speculators pushed their net short in CBOT soybeans last week to the highest level since July 2010. Noncommercial traders still held a net long in CBOT corn, but it was the smallest since July 2010.
Some analysts said uncertainty about the debt situation in Europe ahead of an EU summit on Dec. 9 appeared to be prompting investors to shed risk by exiting the grain markets.
“Ahead of the Dec. 9 European summit, I think people are all trying to get smaller on their positions,” said Dan Basse, president of AgResource Co in Chicago.
“If you look at the Commitment of Traders report, you will see how short we are. And if they can't go down, they've got to go up,” Basse said.
On Monday, open interest fell by nearly 13,000 contracts in CBOT wheat and nearly 68,000 contracts in corn after a session in which both markets closed higher. The data indicates that traders were liquidating short positions.
On Tuesday, most-active March wheat settled up 23 cents, or 3.9 percent, at $6.16 per bushel. The spot December contract ended up 19-3/4 cents, or 3.4 percent, at $5.94-1/2.
March corn rose 7 cents to $6.05-1/2 a bushel.
January soybeans settled up 4 cents, 0.4 percent, at $11.25 a bushel, more than 13 cents below its intraday high of $11.38-1/2.
Traders said soybeans retreated on technical selling toward the close after January contract failed to reach $11.42, a retracement level from last week's drop to $11.02-3/4, a 13-month low.
WHEAT RATINGS IMPROVE
Tuesday's short-covering move in wheat drove news of improving U.S. wheat crop ratings into the background. The U.S. Department of Agriculture late Monday said 52 percent of the crop was rated good to excellent, up from 50 percent a week earlier and 47 percent a year ago.
Crop weather remains favorable for corn and soy regions in Brazil and Argentina. Brazil's new soybean crop now being planted is seen at 74.8 million tonnes, up from the previous view of 73.8 million tonnes, crop analysts Agroconsult said.
Rains over the weekend helped build ample soil moisture in Argentina's main farming region, ahead of sunny and in some places cold weather during the days ahead, local meteorologists forecast.