GRAINS-Wheat futures retreat after rallying on poor US crop weather

By Tom Polansek

CHICAGO, April 17 (Reuters) - U.S. wheat futures stumbled on Friday as traders booked profits after prices rallied this week on worries about harsh weather, while investors became more optimistic about a possible end to the Middle East war.

Tumbling oil prices weighed on grain markets early in the session, though agricultural futures pared losses before trading ended. Nearby corn and soy futures finished slightly higher on the Chicago Board of Trade.

Concerns about drought threatening farms in the U.S. Plains prevented wheat prices from falling too hard, traders said. They also monitored the risk for frost in parts of the region, where farmers grow hard red winter wheat used to make bread.

"The strength in wheat this week continues to stem from the first weather market of the crop season," Nick Paumen, commodity broker for CHS Hedging, said in a note.

WHEAT YIELDS SUFFER

K.C. July wheat KWN26, which represents the hard red winter wheat crop, ended 5 cents lower at $6.50 per bushel after setting a one-year high on Thursday.

CBOT July soft red winter wheat WN26 finished down 7-1/4 cents at $5.99-1/4 per bushel. For the week, the contract jumped 3.2%.

CBOT May corn CK26 ended up 1/4 cent at $4.48-3/4 per bushel, while May soybeans SK26 closed 3-1/2 cents higher at $11.67-1/4 per bushel.

The drought was beginning to do real damage to the U.S. wheat crop, said Tobin Gorey, founder of Australian consultancy Cornucopia.

"It's losing yield," he said.

TRADERS AWAIT U.S. CROP DATA

Commodity Weather Group said frost on Saturday morning could add to losses in the western Plains, while rain in late April was expected to slowly ease crop stress.

On Monday, traders will review condition ratings for U.S. wheat crops and planting progress for corn and soybeans in a weekly U.S. Department of Agriculture report.

Traders said they would also watch to see whether a 10-day ceasefire in Lebanon holds over the weekend. Iran said the Strait of Hormuz was open following the ceasefire agreement.