Salient to Investors:

The worst US drought since the 1930s is damaging wheat crops at a time when hedge funds are the most bearish on prices in 7 months. The median analyst expects global inventories to record a third annual drop, and Chicago futures to rise up to $9.50 a bushel in 2013.

Tom Neher at AgStar Financial Services sees no fundamental reason why wheat should be falling, given Argentina, the Black Sea area and Australia with smaller-than-normal crops, and the US crop not ideal going into the winter stretch.

Lane Broadbent at KIS Futures said wheat is a hardy plant, so can look pretty bad and turn into a crop.

Hedge funds et al held a net-short position by Dec. 24.

The Dust Bowl in 1934, 1936 and 1939 was the result of farming practices that left soil unprotected from sustained drought.

Jeffrey Currie at Goldman Sachs said the USDA is underestimating the drought damage to crops in Argentina and Australia, and global inventories will be smaller than forecast, partly because wheat remains an affordable alternative to corn for feeding livestock.

Abdolreza Abbassian at the UN said investors may not realize the potential problems with wheat supply, with concern over growing conditions in Russia, the US and Europe, and grain harvests in Argentina in its worst dry spell in 85 years and unusually wet weather damaged wheat crops and delayed corn planting.

Doane Advisory Services said crop insurance claims for 2012 may more than double to a record, and with so much of the winter crop lost, claims may not subside any time soon.

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