(Updates with closing U.S. prices)
By Julie Ingwersen
CHICAGO, Sept 22 (Reuters) - U.S. wheat futures set fresh two-month highs on Thursday, buoyed by risks of a deepening conflict in Ukraine and dry weather in crop areas of Argentina and the U.S. Plains, traders said.
Commodity funds hold a net short position in Chicago Board of Trade wheat futures, leaving the market prone to bouts of short-covering.
CBOT December wheat
Corn futures followed wheat higher while soybeans drifted
lower. CBOT December corn
Wheat futures shrugged off pressure from disappointing weekly U.S. export sales and an increased 2022/23 global wheat production forecast from the International Grains Council.
Brokers seemed focused instead on fears of further disruptions to Black Sea grain trade that has been partially re-established by a shipping corridor from Ukraine. President Vladimir Putin on Wednesday ordered a Russian mobilisation to fight in Ukraine and hinted he was prepared to use nuclear weapons.
"Mostly it's just Russia and Ukraine, and what is happening over there," Jack Scoville, analyst with the Price Futures Group in Chicago, said of the strength in CBOT wheat.
Also bullish, Argentina's Rosario grains exchange cut its production forecasts for wheat and corn crops on Wednesday, reflecting the impact of a prolonged drought.
Dry conditions are gripping the southern U.S. Plains, where farmers are planting the 2023 winter wheat crop. The weekly U.S. Drought Monitor report showed "extreme drought" conditions in 53% of Kansas, the top U.S. winter wheat state, up from 42% a week earlier.
"It is still dry out in the Plains, even though there are a few showers around. So the new crop isn't going in with any benefit," Scoville said.
Trade in corn and soybean futures was subdued as brokers awaited results from the U.S. harvest of both crops, which is just beginning in the Midwest crop belt.
Macroeconomic worries hung over the markets a day after the U.S. central bank hiked rates by 75 basis points for a third time, as expected, and raised its rate target to its highest since 2008.
"The Fed is effectively acknowledging that a recession is coming, but inflation will not fall quickly and there will be a lot of pain," ING economists said in a note. (Additional reporting by Gus Trompiz in Paris and Enrico Dela Cruz in Manila; Editing by Sherry Jacob-Phillips; Krishna Chandra Eluri, Andrea Ricci and Grant McCool) ((Julie.firstname.lastname@example.org; 1-313-484-5283; Reuters Messaging: email@example.com)) Keywords: GLOBAL GRAINS/ (UPDATE 3)
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