After the worst drought in half a century slashed the size of this year’s crop in the United States, importers are hoping for bumper harvests in Brazil and Argentina to help drive down prices that rallied to an all-time this past summer.

Chicago Board of Trade (CBOT) corn futures ended nearly flat, losing early gains fuelled by a pick-up in export demand last week due in part to reduced competition from South America and Europe. Dry weather in the southern U.S. Plains lifted wheat.

Wheat found support on expectations for the health of the winter wheat crop in the southern Plains to continue deteriorating amid a lack of rain.

A Reuters poll of 10 analysts showed 33 per cent of the U.S. winter wheat crop was likely in good-to-excellent condition last week, down one percentage point from the previous week. A year ago, the crop was 52 per cent in good-to-excellent condition and the five-year average is 54 per cent.

The U.S. Department of Agriculture’s weekly crop progress report issued after the market closed showed that 33 per cent of the winter wheat crop was in good to excellent condition.

The southern Plains grow mostly hard red winter wheat, which is traded on the smaller Kansas City Board of Trade. The Chicago Mercantile Exchange, which owns the CBOT, said in October it would acquire the KCBT for $125 million in cash (all figures US$).

KCBT wheat futures posted bigger gains than for soft red winter wheat in Chicago and hard red spring wheat at the Minneapolis Grain Exchange.

Corn found early support on from funds after the March contract closed above the 50-day moving average on Friday.

"It was the first time March corn has closed above the 50-day moving average since Sept. 11 and that could be a buy signal to funds," said Brian Hoops, president of Midwest Market Solutions in Springfield, Missouri.

Speculators bull up on corn

"And soybeans are being helped by talk that southern Brazil is drier than desired," Hoops added. "Traders are a little nervous that yields could be trimmed a little."

CBOT December corn ended 0.2 per cent higher at $7.47-1/4 a bushel. December CBOT wheat rose 0.2 per cent to $8.49 per bushel while December KCBT wheat climbed 0.7 per cent to $8.84-1/4 per bushel.

January soybeans gained 0.4 per cent to $14.24-3/4.

The weekly U.S. Commodity Futures Trading Commission’s (CFTC) Commitment of Traders report showed that large speculators, including hedge funds, raised their bullish bets on CBOT corn futures and options by 32 per cent in the week to Nov. 20, snapping three weeks of liquidation.

These players cut their net long in soybeans to the smallest level in nine months, while ballooning their net short position in wheat to its biggest level in five months.

Meteorologist Drew Lerner of World Weather Inc. said crop weather in Brazil was mostly satisfactory, with periodic rains expected in most corn and soybean areas over the next two weeks.

However, the first five days will be dry or mostly dry in the south, where some areas are in need of moisture, he said.

"There are some pockets of dryness in southern Brazil that are going to stay with us," Lerner said, adding that the areas included parts of central and eastern Parana and central eastern Santa Caterina, and a few pockets in Rio Grande do Sul.

"They are not critical, but if we go through most of this week and we see net drying conditions, when we get to the weekend, if we don’t get a decent rain, then we may have a little dryness to worry about," he added.

Traders said the wheat market was looking for results of new tenders being held by Jordan and Iraq, two major wheat buyers, will could offer a fresh sign of export competition in the coming weeks.

In a previous wheat tender last week, Iraq overlooked U.S. hard red winter wheat, which is seen by traders as still too expensive in contrast to increasingly attractive values for U.S. soft red winter wheat.

— K.T. Arasu writes for Reuters from Chicago. Additional reporting for Reuters by Julie Ingwersen and Mark Weinraub in Chicago, Gus Trompiz in Paris and Colin Packham in Sydney.

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Soybeans rallied to recoup Friday’s losses as the largest harvest in the world began to wind down in the United States. Farmers were storing much of their crop, helping to strengthen prices at some Midwest cash markets.

Cash grain merchandisers said basis bids for soybeans in Indiana jumped 14 cents per bushel, while in Iowa they climbed 5 cents. The market was also supported by strong export demand, led by China, despite concerns over a slowdown in its growth.

Farmers had harvested 87 per cent of their corn crop, the U.S. Department of Agriculture’s weekly crop progress report on Monday showed. Analysts polled by Reuters had expected 89 per cent. The soybean harvest was 80 per cent complete, just below expectations for 82 per cent.

The corn harvest in the top two producing states of Iowa and Illinois was 93 per cent and 92 per cent complete, respectively. Farmers in Iowa had harvested 96 per cent of the soybean crop, while in Illinois 80 per cent was harvested.

“Basis values are improving and the market typically finds the lows when we get past 50 per cent of the harvest,” said Brian Hoops, president of Midwest Market Solutions.

He was expecting funds to buy corn futures at the Chicago Board of Trade when the December contract breaks the 50-day moving average at $7.73-3/4 a bushel – just about 10 cents above where the contract was trading on Monday morning.

“We are just a dime away from funds coming into the corn market,” he added.

Prices for CBOT March soybeans and beyond gained less than the front months because of expectations for a record-large soybean crop in Brazil, the world’s No 2 exporter, which typically begins hitting export markets in March.

Brazilian analyst Safras e Mercado raised its estimate of the country’s soybean production to a record 82.5 million tonnes from its July estimate of 82.3 million due to farmers expanding the area to be planted with the oilseed.

CBOT December wheat gained 0.7 per cent to close at $8.78-1/4 a bushel. November soy climbed 0.8 per cent to $15.46-1/2 a bushel and December corn gave up the day’s gain to slip 0.03 per cent to $7.61-1/4 a bushel.

CBOT November soybeans have slumped 14 per cent, or about $2.49, from the all-time high of $17.94-3/4 per bushel set on Sept 4 as timely rains in August boosted yields. That prompted fund managers to cut their bullish bets in the market.

The wheat market has been rallying since last week on speculation by traders that Ukraine, the world’s ninth-largest exporter, would ban exports from Nov. 15 because dry weather reduced production by about one-third this year.

There was also support from concerns that dry weather in the Southern Plains wheat belt may hurt crop prospects.

“There’s not a whole lot of rain for the next week to 10 days,” said John Dee, a meteorologist for Global Weather Monitoring.

Ukraine’s agriculture ministry said on Friday that the current strong pace of wheat exports would exhaust the country’s stocks available for shipping abroad by Nov. 15-20.

It said traders had signed agreements to export 3.57 million tonnes of wheat as of Oct. 18.

The USDA has forecast Ukraine wheat exports this year at 4 million tonnes on a crop of 15.5 million tonnes.

Traders said Ukraine’s likely ban on wheat exports would also be supportive for corn as a sizable portion of Ukrainian wheat is used as a corn substitute in feed.

“It is bullish although not a runaway bullish story like two years ago,” Brandon Kliethermes, a senior economist at Global Insight-IHS said, referring to an export ban by Russia then that led to a significant rally in wheat futures.

“We knew something was coming, that there would be some sort of export limitations,” he said, adding that any ban by Ukraine could help U.S. corn exports. “U.S. corn is still overpriced but this (Ukraine ban) could turn the tide.”

Russia’s agriculture minister, Nikolai Fyodorov, has said he would oppose any ban on grain exports, quashing speculation the country could follow Ukraine, RIA Novosti reported.

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Technical buying had supported the benchmark November contract — which has tumbled 13 per cent from its all-time high of $17.94-3/4 per bushel set on Sept. 4 — after it closed above the 100-day moving average of $15.36-1/4 on Monday (all figures US$).

The U.S. Department of Agriculture’s monthly report on Thursday could help chart the next course of the drought rally that took prices to record highs this summer before retreating amid profit-taking and pressure from the advancing harvest.

In a weekly report on Tuesday, USDA said farmers had harvested 69 per cent of this year’s corn crop, just under the 70 per cent average expected by 17 analysts polled by Reuters.

The crop progress report said 58 per cent of the soybean crop was harvested as of Sunday, below expectations for 61 per cent.

The tally compares with 54 per cent and 41 per cent, respectively, in the previous week.

Corn at the Chicago Board of Trade finished flat while wheat pared gains after the dollar strengthened, climbing 0.59 per cent by 3:17 p.m. CT on "safe haven" buying amid nervousness over U.S. third-quarter corporate earnings.

The dollar has an inverse relationship with grains, as a stronger greenback, the currency of choice in global commodity markets, tends to raise costs in importing countries.

"There was a brief moment of excitement, but people began taking money off the table. They are getting ready for the (USDA) report more than anything," said Jack Scoville, vice-president of Price Futures Group in Chicago.

Wheat was supported by expectations the USDA would reduce its estimate of production in leading exporters Australia and Russia and trim its forecast of global wheat stocks.

November soybeans, which finished 1.5 per cent off the day’s high, were supported earlier by China injecting cash into its currency markets, which was seen by analysts as a possible precursor to more stimulus the world’s No. 2 economy.

China stimulus

"A little stimulus like this goes a long way in the current economic environment," said Sterling Smith, market specialist for Citigroup.

China, the top importer of soybeans and the No. 1 market for the United States, pumped 265 billion yuan (US$42.2 billion) into the money markets — the second-largest gross injection on record. The move raised hopes the world’s second-largest economy could do even more to boost growth.

The country has continued to buy U.S. soybeans despite the rise in prices, and rumours circulated on Tuesday that Chinese processors had purchased two to three U.S. cargoes.

Traders were also buying to position themselves before the USDA monthly report on Thursday.

"We are seeing positioning before the USDA report," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.

November soybeans ended at $15.50 a bushel. December corn was unchanged at $7.42, while December wheat ended 3-1/4 cents higher at $8.64-1/4.

In Europe, Paris-based milling wheat futures were higher, with benchmark November up 1.75 euro, or 0.7 per cent, at 261.50 euros a tonne.

USDA outlook

USDA is expected to show the 2012-13 corn harvest at the smallest in six years and corn supplies could dwindle to 17-year lows by next summer as a result of the worst U.S. drought in 56 years, a Reuters poll showed.

On average, 26 analysts polled by Reuters put this year’s corn crop at 10.601 billion bushels, down 126 million bushels, or 1.2 per cent, from USDA’s September outlook.

Analysts pegged ending stocks of corn for the current 2012-13 marketing year at 648 million bushels, down 85 million bushels, or 11.6 per cent, from the September figure. It would represent the tightest supply since the 1995-96 marketing year.

The soybean crop was pegged at 2.759 billion bushels, based on the average in the Reuters survey. The average yield was seen at 37.006 bushels per acre, up 4.8 per cent from a month ago.

— K.T. Arasu writes for Reuters from Chicago. Additional reporting for Reuters by Mark Weinraub and Sam Nelson in Chicago, Colin Packham in Sydney, Sybille de La Hamaide in Paris and Nigel Hunt in London.

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Analysts said corn and soybeans were also pressured by a strengthening of the dollar, which found favour with investors seeking safe havens after the euro zone ministers grappling with the debt crisis said Spain did not yet need a bailout.

U.S. wheat rose marginally on concerns over dry weather in the western U.S. Plains, and expectations for global stocks to tighten due to dry weather slashing production in second and third largest exporters Australia and Russia, respectively.

Ken Smithmier, grains analyst with the Hightower Report in Chicago, said he was expecting up to 70 per cent of the corn crop to have been harvested as of Sunday, and 55-57 per cent of soy.

The U.S. Department of Agriculture will issue its weekly crop progress report on Tuesday instead of Monday due to the Columbus Day holiday. Farmers have so far harvested 54 per cent of the corn crop and 41 per cent of soybeans.

Wheat traders had their eyes fixed on weather in Western Australia, the country’s top wheat state, and the western portions of the U.S. Plains that were forecast to be dry.

"World wheat production is expected to be lower. Traders will be looking closely at numbers for Australia, Russia and Ukraine," said Brian Hoops, president of Midwest Market Solutions in Springfield, Missouri.

A Reuters poll last week forecast wheat production in Australia to fall by more than one million tonnes, or five per cent, from the government’s latest estimate of 22.5 million tonnes and down 27 per cent from last year’s record-high 29.5 million.

"Only light, scattered rain is forecast for the east coast this week, while Western Australia is expected to be dry," Luke Mathews, commodities strategist at the Commonwealth Bank of Australia, said in a report.

Meanwhile, the USDA’s agricultural attache in Russia said last week that the country’s wheat crop was expected to be the smallest since 2003 this year at 40 million tonnes.

Chicago Board of Trade (CBOT) December corn fell 0.8 per cent to end at $7.42 a bushel, while December wheat rose 0.4 per cent to $8.61 a bushel (all figures US$).

November soy fell 1/2 cent to close at $15.51 a bushel. The front-month contract has fallen almost 14 per cent from a record of $17.94-3/4 a bushel on Sept. 4.

USDA’s monthly supply-demand report on Thursday could provide direction for the next leg of the drought rally that had lifted corn and soybean prices to record highs this summer.

Analysts polled by Reuters expected USDA to raise its estimate of U.S. soybean yield and production. For corn, they were expecting a higher yield but a smaller crop due to farmers not harvesting larges swathes of their fields due to damage from this summer’s drought.

Morgan Stanley analyst Hussein Allidina was expecting a bearish USDA report for soybeans due to increased production. However, Morgan Stanley expects that much of this incremental supply will be offset by an increase in U.S. export demand, he added.

Allidina said the report could be modestly bullish for corn, adding that production could be down by as much as 60 million bushels from USDA’s current estimate of 10.727 billion.

On Friday, Informa said USDA was likely to raise its corn production forecast to 11.194 billion bushels, based on a yield of 127 bushels per acre, and its soybean output figure to 2.86 billion bushels on a yield of 37.8 bushels per acre.

Commodity brokerage FCStone also raised its corn and soybean forecasts last week as harvest reports topped expectations.

— K.T. Arasu writes for Reuters from Chicago. Additional reporting for Reuters by Ivana Sekularac in Amsterdam and Naveen Thukral in Singapore.

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Soybeans were also boosted by investors shedding their dollar holdings in favor of risk assets such as commodities, as European Central Bank president Mario Draghi vowed to preserve the euro as Europe battles its debt crisis.

The dollar index, a measure of value against major currencies, tumbled 0.74 per cent by the afternoon. The greenback typically has an inverse relationship with grains as a drop in the dollar can make U.S. crops competitive in export markets.

Corn futures at the Chicago Board of Trade (CBOT) finished the day flat, erasing gains posted earlier in the session as the harvest in the Midwest farm belt advanced at a record pace. Wheat futures gave up gains to end lower as soybeans pared gains.

The season’s first snowstorm and cold snap were sweeping into the northern U.S. Midwest but analysts were expecting only minor damage, if any, to the corn and soybean crops. The storm was centered in northwestern Minnesota and northeastern North Dakota, both among the top 10 soybean-growing states.

As of Sunday, 36 per cent of North Dakota’s corn crop and 80 per cent of the soy crop had been harvested, according to USDA data. In Minnesota, 53 per cent of the corn crop and 76 per cent of the soybeans had been cut.

Two reports issued Thursday morning helped to rally CBOT soybean futures.

A weekly report from U.S. Department of Agriculture showed export sales of soybeans last week at 1.3 million tonnes, the most in three months and above trade estimates for between 800,000 and 900,000 tonnes.

The data showed that China, the world’s top importer of soybeans and the No. 1 U.S. market, bought the bulk of last week’s exports, booking 1.03 million tonnes.

While the large sale helped to ease concerns that imports by China would wane as its economic growth slows, it also reinforced the need to temper demand with higher prices so that there will be enough buffer stocks in the United States.

At the same time the export sales data was issued, Statistics Canada estimated canola production in that country at 13.36 million tonnes this year, down 2 million tonnes from its Aug. 22 estimate and more than one million below trade estimates.

A smaller canola crop in Canada could shift some of the demand for the oilseed to U.S. soybeans.

"The market was led higher by the export sales and StatsCan numbers," said futures specialist Sterling Smith of Citigroup.

Benchmark CBOT November soybean futures rose 19-3/4 cents, or 1.3 per cent, to end at $15.51-1/2 a bushel. Profit taking pared gains from the session high of $15.68-3/4 (all figures US$).

Soybeans have slumped 13 per cent from a record high $17.94-3/4 set on Sept. 4 in a selloff triggered by anecdotal accounts of higher-than-expected U.S. crop yields.

CBOT December corn rose 1/4 cent to end at $7.57 a bushel; December wheat fell 3-3/4 cents to $8.69-1/4.

The U.S. Grains Council on Thursday said it was expecting China to produce a record corn crop this year. Its forecast was based on a crop tour of growing regions in the country that has emerged as a major corn importer over the past two years.

Chinese imports of U.S. corn this year have, however, waned as prices rose to record highs this summer due to the worst U.S. drought in half a century.

The council said China had enough corn to meet demand this year, but the country could import supplies to build its reserves, which are used to temper domestic prices.

— Karl Plume and K.T. Arasu write for Reuters from Chicago. Additional reporting for Reuters by Michael Hogan in Hamburg and Naveen Thukral in Singapore.

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The declines were accentuated as hedge funds booked profits ahead of the end of the month and quarter. Corn was on track for a second straight monthly decline, and soybeans headed for their first drop in four months.

Corn futures fell 2.5 per cent to the lowest level in nearly three months. Like soybeans, corn was pressured by the harvest in the world’s top grains exporter moving at a record clip, boosting supplies in the pipeline.

Investors had focused for more than three months on tight supplies brought on by the worst U.S. drought in half a century, but now they are turning their attention to macroeconomic factors, including a stronger dollar, for price direction.

Analysts said investors were liquidating long positions in grains after prices hit record highs this summer. They said prices have been pressured by anecdotal accounts of better-than-expected soybean yields and dimming demand for corn.

"New-crop supplies are coming into the market and there was some balancing of books before end of the month and quarter," said Sterling Smith, futures specialist at Citigroup in Chicago.

Corn futures were also weighed by U.S. crude oil falling 1.5 per cent and ethanol production in the United States slumping three per cent last week to a two-month low.

China’s corn imports are expected to drop just over 60 per cent next year, according to a Reuters poll.

But the biggest market mover of the day was the debt crisis in Europe, which helped to strengthen the dollar and shift the attention away from fundamentals.

"Grains took the diverging path due to supply-side fundamentals in the third quarter, but the two roads are coming together now." said Mike Zuzolo, president of Global Commodity Analytics in Lafayette, Indiana.

"They are back to protesting in Europe and we are seeing risk-off trade," he added.

Investors worried about Europe’s debt crisis as tens of thousands in Greece took to the streets in the country’s biggest anti-austerity demonstration in months even as the European Central Bank began buying bonds to restore economic confidence.

Spain’s Prime Minister Mariano Rajoy said he was ready to seek a new rescue package if the country’s debt financing costs remained too high for too long.

The dollar index, a measure against major currencies, was at a two-week high, rising 0.38 per cent by 13:05 p.m. CT, raising the cost of U.S. grains overseas.

Chicago Board of Trade (CBOT) November soybeans fell 38-1/2 cents, or 2.4 per cent, to close at $15.73 a bushel (all figures US$). CBOT December corn was down 19 cents, or 2.6 per cent, at $7.24-3/4 a bushel while December wheat fell 17-1/4 cents, or two per cent, to $8.69-1/4.

Egypt buys wheat

Traders were gearing up for Friday’s U.S. quarterly grain stocks and wheat crop reports, which may provide new direction for markets.

"Everyone is pretty hesitant to make any moves ahead of the USDA grains stocks report on Friday," Rabobank analyst Erin FitzPatrick said. "The very fast progress being made with the U.S. corn harvest does raise questions about how this will impact the stocks report."

Analysts polled by Reuters expect U.S. corn and soybean stocks as of Sept. 1 to be the lowest in eight years at the end of the 2011-12 season.

Egypt’s state grains buyer General Authority for Supply Commodities (GASC) bought 300,000 tonnes of Romanian and French wheat at its snap tender. There were no purchases of wheat from Russia, which has been a major supplier to GASC the past month.

The absence of Russian wheat sales could reinforce speculation that one of the world’s top wheat exporters was running out of supplies for export after a drought slashed its harvest this year.

There have been persistent rumours that Russia could limit exports, but with its prices rising steadily over the past month, its supplies could have become less competitive.

"Russians are pretty much done as far as being an exporter," said Dan Basse, president of AgResource Co. in Chicago, adding that Russian wheat prices were the highest in 20 years.

He said demand from North African countries could now come to other suppliers like Canada, the United States and Australia, where dry weather is raising concerns over crop prospects.

European benchmark November wheat in Paris ended 0.1 percent higher at 261.50 euros a tonne on export prospects.

— K.T. Arasu reports for Reuters from Chicago. Additional reporting for Reuters by Michael Hogan in Hamburg and Colin Packham in Sydney.

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Futures rebounded from six-week lows in Asian trading and kept the momentum into the Chicago session up to midday when the benchmark November contract turned negative. But a modest spate of buying near the close nudged prices back into the black.

When prices eased, grain companies took the opportunity to cover their short positions and even make some outright purchases on expectations that U.S. supplies will be tight in the months to come.

"Farmers are going to hold on to their beans, and it could get tight between now and February," said Gerry Gidel, chief feedgrain analyst at Rice Dairy LLC in Chicago.

Soybean exports from South American agricultural powerhouses Brazil and Argentina typically start in the first quarter of the year, and until then end-users have to depend on U.S. supplies.

Data from the U.S. Department of Agriculture showed that exporters have already sold nearly 75 per cent of the 28.71 million tonnes of soybeans projected for overseas sales in the 2012-13 season, with 11 more months to go.

But anecdotal accounts of soybean yields surpassing expectations after the worst drought in half a century have given the market a bearish tone in recent weeks. Prices have slumped 10 per cent from their peak of $17.94-3/4 set on Sept. 4 (all figures US$).

On Monday, the November soybean contract fell below $16 per bushel for the first time in 11 weeks.

"Beans in the northern part (of the Midwest) seem to be great," said Jack Scoville, vice-president of Price Futures Group.

Prospects of big crops in Brazil and Argentina, concerns of slowing demand from China and the U.S. soybean crush coming in lower than expected last month have been weighing on the market.

Chicago wheat futures erased gains posted during Asian trading to turn lower amid forecasts for rain in the U.S. Plains as seeding of the winter crop advanced. Liquidation of long positions tied to slow export demand also pressured prices.

Egypt seeks wheat

After futures trading closed, Egypt’s state-run General Authority for Supply Commodities (GASC) set a tender to buy an unspecified amount of wheat for Dec 1-10 shipment. The agency has bought a large amount of Russian wheat over the past month.

The wheat market is expected to remain volatile amid persistent speculation that Russia could curb exports.

Wheat output from the world’s second-largest exporter, Australia, may fall below 20 million tonnes in the 2012-13 season due to a dry spell across Western Australia, analysts said, which would further tighten global supplies and stoke prices.

A weekly USDA report on Monday showed that 25 per cent of the winter wheat crop had been planted as of Sunday, up from 11 per cent a week earlier but behind the five-year average of 27 per cent.

Corn futures ended slightly lower, weighed down by the rapidly advancing harvest and a pickup in farmer selling.

"Oversold"

Traders were gearing up for Friday’s U.S. quarterly grain stocks and wheat crop reports that could provide direction for markets that have been on the wane in terms of prices and trading activity, since drought led to record highs this summer.

Analysts polled by Reuters expect U.S. corn and soybean stocks as of Sept. 1 to be the lowest in eight years at the end of the 2011-12 season.

"The market is oversold," said Brian Hoops, president of Midwest Market Solutions, which caters largely to farmers. He said accounts were showing better-than-expected yields in the northern Midwest, which had rains in late August.

Chicago Board of Trade (CBOT) November soybeans rose 0.1 per cent to end at $16.11-1/2 a bushel, off the session high of $16.25-1/2 and low of $16.04-1/4. December corn was down 0.13 per cent at $7.43-3/4 per bushel, while December wheat fell 0.6 per cent to $8.86-1/2 per bushel.

Scoville said there was talk of end-user demand in soybeans but he could not confirm any sales or the identity of the buyers.

Rumours emerged that China was seeking or had bought several cargoes of U.S. soybeans, but export traders could not confirm any fresh purchases by the top importer.

Scoville also said harvest pressure on corn and soybeans could ease once farmers have cut three-quarters of the crops, but until then any rallies would be muted.

USDA on Monday said the corn harvest was 39 per cent complete as of Sept. 23, up from 26 per cent a week earlier. The soybean harvest rose to 22 per cent complete from 10 per cent.

Analysts had been expecting the corn harvest to be 41 per cent finished and the soybean harvest 20 per cent, according to the average of estimates in a Reuters poll.

— K.T. Arasu writes for Reuters from Chicago. Additional reporting for Reuters by Sybille de La Hamaide in Paris and Naveen Thukral in Singapore.

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The benchmark November soybean contract at the Chicago Board of Trade (CBOT) dropped to a session low of $15.90-1/4 a bushel in Asian trading (all figures US$). Prices rebounded sharply during the Chicago session but stayed at their lowest in six weeks.

The spot contract has tumbled just about 10 per cent in three weeks on profit-taking and investment portfolio balancing after the market set an all-time high of $17.94-3/4. Prices had soared as the worst U.S. drought in half a century devastated crops in the world’s top grains exporter.

Prices remain up more than 12 per cent from the start of June, when the drought began lifting markets.

"There’s been talk about huge South American production and major growth in palm oil supply," said Roy Huckabay, executive vice-president at the Linn Group in Chicago. "There was also some talk about palm oil replacing bean oil," he said.

CBOT corn futures also pared losses. So did wheat, which came under pressure from forecasts for rain this week in the U.S. Plains, where farmers are planting the winter crop.

Traders attributed the paring of losses in grains to short-covering, which coincided with the dollar index coming off its highs. The dollar typically has an inverse relationship with grain prices, with any strengthening of the currency raising costs for importers across the world.

After the market closed, the U.S. Department of Agriculture said 39 per cent of the corn crop had been harvested as of Sunday, just shy of trade expectations for 41 per cent. The soy harvest was 22 per cent done, below expectations for 20 per cent.

Price movements in soybeans remained the most active, as they were last week. Bulls lost ground despite projections by the U.S. Department of Agriculture for ending stocks to be the smallest in nine years next summer and the stocks-to-use ratio, a measure of demand, seen the tightest in five decades.

"We are seeing a flight to safety to the dollar and negative headwinds for physical commodities," said grains analyst Ken Smithmier of the Hightower Report in Chicago. "There have been better reports of yields and cash markets were softer."

November soybeans fell 0.7 per cent to close at $16.10, recovering from a session low of $15.90-1/4. December corn fell 0.5 per cent to finish at $7.44-3/4 a bushel, up from the low of $7.36-1/4, while December wheat lost 0.6 per cent at $8.92, up from a low of $8.83-1/4.

Soy crop getting bigger?

More analysts expect USDA to raise its estimate of the soybean yield in its next crop update on Oct. 11, based on stories of better-than-expected output so far in the harvest.

There is also pressure on soybeans on expectations for a big surge in plantings in Brazil and Argentina, the world’s second- and third-largest exporters after the United States.

"Encouraged by current high prices, farmers throughout South America are expected to grow record crops," consultant Capital Economics said in a note on Monday. It expects demand from China, the world’s top buyer, to remain subdued this year.

"Although China would have to increase its soybean imports at some point to replenish its reserves, we believe that this is likely to be delayed until the South American harvests become available," the economic research consultant said.

A slowdown in edible oil consumption, which sent palm oil to a two-year low, added to bearish sentiment in soybeans.

"Oilseed analytical firm Oil World expects global soybean demand to decrease by three million tons in the 2012-13 season. This is likely to be due in part to reduced use for animal feed and in part to lower use in biodiesel production," Commerzbank said.

Palm oil prices will fall further this year as slowing economic growth dents demand for biofuel production, leading to higher stocks at top producers Indonesia and Malaysia, industry executives meeting in India at the weekend said.

— K.T. Arasu writes for Reuters from Chicago. Additional reporting for Reuters by Sam Nelson in Chicago, Ivana Sekularac in Amsterdam and Naveen Thukral in Singapore.

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Analysts monitored technical charts for any sign that the market will repeat what it did this time last year — erase about 20 per cent of its value between the start of September and early October when the soybean crop was being harvested.

Wheat and corn futures fell one per cent under pressure from soybeans, after moving between minor gains and losses most of the session in the absence of fresh fundamentals.

Market action was centered in soybeans, as it was on Monday, when prices tumbled the daily trading limit of 70 cents — about four percent — on anecdotal accounts that Midwest harvest yields are better than expected.

A Reuters poll of 14 analysts on Tuesday put the soybean yield at 35.85 bushels per acre, up from the government’s latest forecast of 35.3 bushels on Sept. 12.

The surprising yields are leading some analysts to predict that soybean ending stocks will not dip below the psychologically important level of 100 million bushels. The U.S. Department of Agriculture has forecast stocks at 115 million bushels by next summer.

"There is a discussion of stronger production and ending stocks not falling below 100 million bushels," said Rich Nelson, chief strategist at Allendale Inc. in McHenry County, Illinois.

"The market does not have the bullish argument anymore. The highs are in for the year," he added.

With soybean prices soaring 30 per cent after the worst drought in half a century began showing its teeth in June, the rally to a record high of $17.94-3/4 per bushel on Sept. 4 primed the market for a major correction, some analysts said (all figures US$).

But others have set price targets at $20 per bushel in the coming months on expectations for a short crop and USDA projections that the stocks-to-use ratio, a measure of demand, will be the tightest in five decades.

And it will be another four to five months before soybeans harvested in South American agricultural powerhouses Brazil and Argentina are ready for shipment to global markets.

Tuesday’s decline was also fed by concerns that soybean demand from top importer China is set to wane, a surge in the pace of U.S. hog slaughter, and fading optimism over the Fed’s latest steps to stimulate the economy, analysts said.

"There has been a convergence of negative news," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.

He said some investors may be reducing their risk exposure due to escalating tension between China and Japan — Asia’s top two economies — over a maritime dispute.

"Drought issue is over"

"Speculators want to get the hell out," said commodities broker Shawn Hackett, president of Hackett Financial Advisors and publisher of the Hackett Money Flow report.

"The drought issue is over and yield is looking better than expected and demand is waning," Hackett said, adding that he sees prices heading even lower, to a range of $14.50 to $15 per bushel, as part of the correction over the next one to two months.

The U.S. Department of Agriculture’s weekly crop progress report on Monday showed that 10 per cent of the soybean harvest was complete as of Sunday, just ahead of the nine per cent expected by 11 analysts polled by Reuters.

The corn harvest was 26 per cent complete, topping expectations for 24 per cent, as the corn and soybean harvests advanced at a record pace in the world’s top grains exporting country.

Chicago Board Of Trade (CBOT) November soybeans fell 1.7 per cent to end at $16.40. December corn futures ended one per cent lower at $7.40 per bushel.

December wheat fell 1.7 per cent to $8.63-1/2 per bushel after gaining one per cent earlier.

November milling wheat in Paris was 0.4 per cent at 259.25 euros a tonne, erasing earlier gains.

Analyst Bill Nelson of Doane Advisory Services said there were expectations that Chinese imports of U.S. soybeans would decline. A surge in the number of hogs slaughtered in the United States also pointed to less demand.

Nelson said some investors might be reducing their risk exposure in the wake of escalating trade tension between the United States and China, with both countries filing complaints with the World Trade Organization.

— K.T. Arasu writes for Reuters from Chicago. Additional reporting for Reuters by Sam Nelson in Chicago, Gus Trompiz and Valerie Parent in Paris and Colin Packham in Sydney.

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Corn at the Chicago Board of Trade (CBOT) tumbled to a more than two-month low while wheat sank five per cent under the weight of soybeans, which were considered to be the strongest fundamentally of the three. Soy’s stocks-to-use ratio, a measure of demand, was the lowest in nearly five decades.

CBOT November soybeans fell 70 cents per bushel — the most a contract can move either way on a trading day, as set by the exchange — after accounts that farmers were getting better-than-expected yields in harvesting over the weekend (all figures US$).

Some of the better yields were coming from the wester Midwest, an area that had remained dry as the worst drought in half a century devastated crops. The northern and eastern parts of the Midwest got beneficial rains in August.

Prices for soybeans in the cash markets in Iowa, the top corn and soybean state, fell sharply about two weeks ago, perhaps in an early signal of the better yields being harvested now.

Traders also attributed the sell-off to rains in Brazil, the world’s second-largest exporter of soybeans after the U.S., as its farmers gear up to plant their crop.

CBOT November soy slid four per cent to $16.69 a bushel and registered the lowest front-month price since Aug. 20.

CBOT new-crop December corn sank 4.4 per cent or 34 cents to $7.48 a bushel and touched the lowest price for a nearby contract since early July.

December wheat fell five per cent or 46-1/4 cents to $8.78 per bushel.

The severe U.S. drought in the Midwest drove nearby corn prices to a record high in early August and pushed soybeans to an all-time top in early September, leading to thoughts that buyers would ration demand in the face of high prices.

The U.S. corn crop looks to be the smallest in six years, and the soybean crop the smallest in nine years, the U.S. Department of Agriculture said last Wednesday.

But with the harvest advancing, a dismal situation might be improving slightly.

"Nothing scientific"

"There have been reports of yields being better than expected during the harvest over the weekend, and farmers were also selling more corn than expected because they don’t want to store grain that is affected by diseases," said Charlie Sernatinger, vice-president of sales at ABN AMRO.

Trace amounts of aflatoxin, a naturally occurring toxin, have shown up in some of the corn harvested in the U.S. Any major outbreak has the potential to snarl the grain-handling system.

Jeff Hainline, president of Advance Trading, said he was getting anecdotal accounts of better-than-expected yields from grain elevators and farmers in the Midwest.

"It’s nothing scientific, but these are people we trust," he said, adding that there were accounts of soybean yields being better than expected in the western Corn Belt.

The fields harvested so far show a big variance in corn yields. Analysts said yields averaged from just five to 10 bushels per acre in some fields to 160 to 175 bushels in others.

Analysts polled by Reuters were expecting the corn harvest to be 24 per cent complete and soybeans nine per cent. The USDA will update the harvest progress later on Monday.

Wheat was pulled down by wheat, long liquidation and favourable rains in parched areas of Australia.

The grain markets got a boost last week from the U.S. Federal Reserve’s latest economic stimulus plan, but that euphoria has passed, and outside markets did not offer the same bullish lift, said Shawn McCambridge, grains analyst with Jefferies Bache in Chicago.

Speculators, who cut their net long positions in Chicago grains according to the most recent regulatory data, are responsible for some of the selloff.

"From a fund perspective, the upside potential is very limited," McCambridge said.

— Rod Nickel and K.T. Arasu write for Reuters from Winnipeg and Chicago respectively. Additional reporting for Reuters by Sam Nelson and Julie Ingwersen in Chicago.

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