Chicago wheat futures slowed down in the early hours of trading on Thursday after reaching 3-1/2-month highs, as supply concerns were sparked by a drought in Russia's top producer and a drone strike on a Ukrainian port.

Corn futures were close to their three-month high, boosted by higher wheat prices as well as the strength of the oil market following an Iranian missile strike on Israel.

Traders say that higher oil prices can increase demand for biofuels made from crops, and Middle East insecurity tends to boost wheat.

Weather forecasts in Brazil's top producer, which has been experiencing dry conditions and a slowdown of plantings due to the lack of rain, have predicted a slight decline in soybean prices.

Chicago Board of Trade's most active wheat contract was down 0.3% to $6.13-1/2 per bushel by 0205 GMT, after reaching $6.17 on Wednesday, its highest level since June 14. Prices have risen by around 6% this week.

CBOT corn remained unchanged at $4.32-1/4 a bushel. It had previously reached $4.34-1/4 - its highest level since June 28 - in the previous session. Soybeans fell 0.4% to $10.51-1/4 a bushel.

The three contracts have fallen to lows of four years in recent months, but they've recovered some ground due to central bank interest rate cuts, the weakening U.S. Dollar and adverse weather that threatened supply.

Further dry weather will reduce the winter sowing rate and production potential for next year, according to Vitor Pistoia of Rabobank in Sydney.

Oryol, a region in Russia, declared a state-of-emergency on Wednesday because of poor weather conditions for crop production. The country's grain importers' union claimed that recent export volumes had been excessive and demanded a quota system to limit shipments.

Sovecon, a consulting firm, has reduced their forecast for Russian wheat exports in 2024-25 to 47.6 metric tons.

Ukrainian officials also said that a Russian drone attacked a grain storage facility near the Danube. This is a reminder of the potential disruption to wheat supplies due to the war between Ukraine and Russia.

Around 30% of the world's wheat exports are exported by Russia and Ukraine.

The dry weather is also threatening the upcoming wheat harvests of Argentina and Australia. Low rainfall combined with frost has wiped out more than one million tons from analysts' forecasts.

Pistoia stated that speculative funds had more than halved the net short position they held in CBOT Wheat in the past four weeks.

He added: "This drop in 'bearishness,' could be an indicator that the worst of this year's prices is behind us." (Reporting and editing by Alan Barona, Sumana Niandy and Peter Hobson)

(source: Reuters)