Feb. 27 (Bloomberg) -- Wheat surged to a record in Chicago as prices seesawed from the biggest gain ever to the largest decline and then back again.

Wheat futures rose more than 25 percent from today's low to their high, a gain that was bigger than all but seven annual price increases for the grain since 1973 on the Chicago Board of Trade. The volatility increased the potential profit and loss on every transaction, discouraging some traders.

``A lot of players are just packing it in or drastically reducing positions because you just can't control the risk,'' said Jack Lablonde, president of Benchmark Trading Inc. in Cedarburg, Wisconsin.

Wheat has more than doubled in the past year, reaching a record high seven times this month, as the world's farmers failed to keep pace with rising demand, eroding inventories. The rally fueled food inflation with higher costs for Italian pasta, Japanese noodles, French baguettes and Kellogg Co. cereals.

Wheat futures for May delivery rose 35.5 cents, or 2.9 percent, to $12.50 a bushel in Chicago, after earlier rising by the new trading limit of $1.35, or 11 percent, to a record $13.495. Before the rebound, prices plunged by the trading limit to $10.795, after earlier reaching the record in overnight trading, a $2.70 swing.

``It's a free-for-all,'' said Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines, Iowa. ``I don't know if it's money management or fear. There's no fundamental justification for prices being limit up yesterday and down the limit today.''

Price Limits

The daily price-change limit, the biggest ever for the exchange, was raised after wheat rose the previous maximum of 90 cents yesterday, which was set after wheat jumped the earlier limit of 60 cents on Feb. 25. Before Feb. 11, the limit had been 30 cents.

Volatility has increased because traders aren't sure how much U.S. farmers, the world's largest exporters, will plant in coming months and whether global crops will be damaged by weather as they were last year, said Jon Marcus, president of Lakefront Futures and Options in Chicago.

``All technical analysis and fundamental analysis is basically obsolete when the markets start to trade like this,'' said Marcus. ``Bulls and bears are both scared and are in a high-stakes game of hot potato right now.''

Wheat futures had advanced 18 percent in the previous four days, the largest such gain for a most-active contract since August 1999.

Planting Outlook

Joe Glauber, acting chief economist for the Department of Agriculture, said last week at a conference that U.S. growers will increase seeding by 6 percent to 64 million acres by the end of the marketing year on May 31, 2009. U.S. supplies will rise by then to 538 million bushels, up from 272 million the same date in 2008, the USDA said.

Some analysts said the government is overestimating how much grain will be planted in the U.S. Andrew Swenson, a farm- management specialist at North Dakota State University in Fargo, said record soybean prices, high fertilizer costs and a shortage of seed will encourage growers to plant more soybeans and reduce wheat acreage.

``The 2008 prices of competing crops have also increased,'' Swenson said. ``Wheat seed has increased greatly relative to seed costs for other crops. Nitrogen fertilizer is very high, which is a negative to high-nitrogen usage crops such as corn and wheat.''

Drought devastated wheat crops in Australia the past two years, and an April freeze followed by excessive rainfall curbed yields in the U.S. Dry weather also hurt plants in Canada and Argentina last year.

``It's interesting how we got to this point -- by supply equaling demand,'' said Larry Young, a senior trader at Infinity Futures Inc. in Chicago. ``Any hiccups in supply and we could see further price spikes.''

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net; Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.

Last Updated: February 27, 2008 15:45 EST