Short covering by funds was a feature, but traders said some interests were building long positions, anticipating further strength in the market.
"I think some are getting long. Getting above $3.40 has people saying that maybe this has legs," one floor source said.
CBOT March wheat settled up 5-1/2 cents at $3.45-1/2 per bushel after reaching $3.46-1/2, its highest point since October 20. Deferred months closed up 5-1/4 to 9-1/2 cents.
Volume was on the heavy side, estimated by the exchange at 47,414 futures and 11,345 options. Funds bought about 10,000 contracts on the day, with Calyon Financial a featured buyer of 3,500 lots, traders said.
Funds bought at least 4,000 contracts in Kansas City and 700 to 1,000 lots in Minneapolis, according to trader estimates.
Funds remain short CBOT wheat, although traders said their net short position has dwindled to the 20,000-25,000 range after a roughly two-week buying spree. That would represent a decline of roughly 50 percent since December 20.
The latest CFTC commitments report showed that as of December 20, funds were net short 46,284 for CBOT wheat futures and options combined, and net short 45,223 for futures only.
Meanwhile, CFTC data shows funds have been adding to their net long positions in Kansas City and Minneapolis wheat. Expectations of fresh buying by index funds in early 2006 have been a driving factor in the run-up in wheat futures.
"People have talked it about it so much that the trade will be disappointed if it doesn't show up," Linn Group analyst Roy Huckabay said.
Wednesday's rally sent futures deeper into overbought territory. The nine-day relative strength index for the March contract closed at 81, well above the benchmark of 70 that chartists view as one sign of an overbought market.
March wheat broke through resistance at $3.43-1/2. Traders had pegged the next resistance level at $3.48. Traders saw support at $3.32 and $3.30-1/2.
Exports were quiet overnight.
Crop weather in the US winter wheat belt was generally satisfactory, although traders voiced concern that dry and unseasonably warm temperatures in the Southern Plains could leave the crop more vulnerable to damage if severe cold returns.
Private forecaster Meteorlogix said there was a chance for light precipitation soon in soft red winter wheat areas of the Midwest but little chance for moisture in the Plains HRW belt.
Cash basis bids for soft red winter wheat were mostly steady and farmer selling remained slow.