Oct. 31 (Bloomberg) -- Wheat fell for a second day as a worsening economic crisis and a rallying dollar erode global demand for supplies from the U.S., the world's biggest exporter of the grain.

U.S. sales to foreign buyers are down 29 percent from a year earlier in the marketing year that began June 1, government data show. Japan said today it canceled a plan to purchase 75,000 metric tons of U.S. wheat, instead buying 21,000 tons from Canada. The dollar rose against the euro, headed for a record monthly gain. Wheat is down 40 percent this year.

``If the world economy continues to collapse, who knows'' what will happen to demand, said Dan Kuechenmeister, manager of the commodities department at RBC Dain Rauscher in Minneapolis. ``The dollar got a little stronger overnight, so Japan figured they'd save a percentage. Everybody's starting to look for bargains because times are getting tough.''

Wheat futures for December delivery dropped 3.25 cents, or 0.6 percent, to $5.3475 a bushel at 10:24 a.m. on the Chicago Board of Trade. Before today, the most-active contract fell 60 percent from a record $13.495 on Feb. 27 after the world's farmers increased planting.

Overseas buyers have committed to buy 18.9 million metric tons of wheat since June 1, down from 26.6 million during the same period the prior year, according to the U.S. Department of Agriculture.

Demand Destruction

``We still don't know what the final tally will be as far as demand destruction,'' Kuechenmeister said. ``You'd like to think there's a value point in the commodities, especially the grains used for food. People are going to want to eat still.''

Spending by U.S. consumers dropped more than forecast in September, capping the weakest quarter in 30 years, the Commerce Department said today, an indication the economic slump is deepening.

Global wheat production may jump to a record 683 million tons in the season ending June 2009, up 12 percent from the prior year, the London-based International Grains Council said in a report yesterday. The USDA on Oct. 10 projected world harvests at 680.2 million tons.

Consumption of the grain is expected to increase 6 percent to 655.6 million tons in the marketing year that ends on May 31, the U.S. government said. The price decline may boost the use of wheat as livestock feed by 30 percent as growers switch from corn.

The value of the dollar versus six major world currencies increased as much as 1.9 percent today and has gained 8.1 percent in the past month.

Wheat is the fourth-biggest U.S. crop, valued at $13.7 billion in 2007, behind corn, soybeans and hay, government data show.

To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.

Last Updated: October 31, 2008 11:29 EDT