Wheat has been the best-performing component on the Deutsche Bank Liquid Commodity Index (DBLCI) in 2011, rising 14.9%, Lewis of Deutsche Bank wrote in a weekly commodities report.

The analyst believes wheat returns have been driven higher on worries that freezing weather in the U.S. and droughts in northern China could damage crop yields. "We believe price spikes in this complex are a growing threat particularly in an environment where governments employ export bans to ensure food security," he said.

In a previous report, Lewis had also noted that droughts that devastated crop production in the former Soviet Union and the subsequent decision by Russia to stop grain exports last summer had lent support to wheat prices.

Too much rain in the European Union, Canada and Australia had also contributed to production problems, Lewis had noted.

Still, wheat inventories remain at high levels, and the floods that hit Queensland, Australia will have limited impact on overall wheat production because Queensland represents only 7% of the country's production -- with most of it having already been harvested, according to the analyst.

"In the absence of any further supply disruptions we would expect wheat to under-perform relative to corn and soybeans given the more generous level of inventories," he said. "We expect the weather induced rally in wheat prices to fade during the coming year."

Waverly Advisors strategist Andrew Barber said Waverly has had a long wheat position since Jan. 5. "It's our expectation that, in addition to fundamental and macro drivers, the grain markets have the potential for narrative event driven bubbles similar to last year's," he explained.

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