Speculation, overreaction

Wheat futures price on the Chicago Board of Trade has surged nearly 80 percent in just over a month that ended early August, in reaction to a sweeping crop shortfall in some major cereal-producing countries and a temporary export ban by Russia, the world's third largest wheat exporter.

FAO said that the price surge did not reflect "global market fundamentals" and that it was attributable to unexpected crop failure, national policy responses and speculations.

Tim Hannagan, an analyst with PFGBest, a leading U.S. futures brokerage, said funds were a key factor behind the wheat price roller-coaster ride this summer.

"It has been the futures market that created the price inflation," he said.

However, many traders believed the funds over-reacted to a weather disaster that is unlikely to cause a global shortage. Quite a part of the positions was built by funds rather than businesses that use grains.

Funds took advantage of extreme weather and crop shortfall and then overbought, "thus overinflating futures prices," Hannagan said.