Rain generally is considered a bad thing for winter wheat crops this late in the growing season because it can create conditions for pest and disease damage as well as prevent farmers from working their fields.

This week, traders watched the weather forecasts religiously and saw any slight change as an excuse to push wheat prices sharply lower or sharply higher. On Monday and Tuesday, the weather forecasts seemed to show a good potential for dry conditions across the Southern Plains, a good sign for farmers hoping to harvest their crops and a bearish sign for wheat prices.

By Tuesday, wheat prices had fallen almost 24 cents a bushel, or 4 percent, on the week. Then, the forecasts changed and called for an increasing likelihood of continued rains across winter wheat growing areas. Wheat futures, which had set new highs the previous week, rallied from their Tuesday lows to set fresh contract highs on Thursday. This bullish development was coupled with continued worries about crop conditions and potential yield problems for foreign wheat producers.

Unlike corn and soybeans, the U.S. is not the world's largest wheat producer and poor crop conditions overseas can create strong upward price pressures.

This year, large wheat growing regions in Australia and the Ukraine have been in drought-like conditions and the impending yields are expected to be poor.

Because of this underlying supply problem, wheat prices have been volatile and strong lately, a trend that may continue until the U.S. wheat is harvested and counted. If rains do fall across the Southern Plains in coming days, it could further strengthen wheat prices.

Sugar futures seemed to end an 18-month price skid on Monday, as traders may have started to believe that strong global demand may support prices in the long-term, despite a large projected sugar production surplus this year. Sugar prices were elevated two years ago on the back of high oil prices and large numbers of sugar crop failures. Because sugar can be made into ethanol, demand for sugar surged as ethanol prices rose along with crude.

Shortly thereafter, Brazil and India had bumper sugar crops and many nations, including the U.S., focused on ethanol production from corn, rather than sugar. This caused a protracted decline from nearly 19 cents a pound in 2005 to less than 9 cents a pound last week. Now, despite the Department of Agriculture's estimate that sugar production will surpass demand again this year by 9 million tons, traders may believe that underlying demand strength, especially in developing countries, could catch up to supply in the near future. As a result, sugar prices on Monday rose by almost half a cent, nearly a 6 percent increase.

Crude oil futures continued their rally early this week with prices on the August contract touching nearly $70 a barrel on Tuesday. The rally then came to a sudden halt on Wednesday as the Department of Energy released its weekly inventory data. The data showed that inventories of crude oil increased by a much larger than expected 6.9 million barrels. This seemed to alleviate much of the supply worries that traders had and crude prices crumbled shortly thereafter.

The August contract fell from a Tuesday high of almost $70 to a Wednesday low of $67.65, before rallying to close at $68.86 on the day. Crude inventories now stand above last year's levels and far above the average for this time of year. This may serve as a reason for traders to start selling some positions to take profits after a lengthy rally that began at the beginning of June.

Opinions expressed solely are those of the writer. Walt Breitinger is vice president of commodities at A.G. Edwards and Sons. He can be reached at (219) 738-6460.