Prices ease as markets consolidate after climb

LONDON: Chicago wheat futures slid nearly one percent on Tuesday as forecasts for rain in parts of the US winter crop areas weighed on the market, while corn also fell back in a modest setback after seven straight sessions of gains.

Soybeans also dipped, tracking the weakness in corn and wheat, although the market is being supported by dry weather hurting crops in the United States and China during the crucial pod setting stage.

"The latest weather reports suggest some of the driest US hard red winter wheat regions will get periodic rainfall over the next 10 days," said Luke Mathews, commodities strategist at CBA in Sydney in a note.

"Forecast totals are not expected to be large, but any improvement in soil moisture will be welcome ahead of the upcoming autumn planting period."

Chicago Board of Trade benchmark December wheat fell 7-1/2 cents or 0.9 percent to $7.87-1/2 a bushel by 1130 GMT.

An improved crop outlook in Australia, where much-needed rains have fallen during the past few days, added to the downward pressure on wheat prices.

The country, one of the world's leading wheat exporters, is hoping for an above average crop of around 24 million tonnes.

November milling wheat futures in Paris eased 0.7 percent to 212.50 euros a tonne. Prices remain, however, on an overall upward trend standing nearly 14 percent above levels traded three weeks ago.

"It is a consolidation rather than a fall," one European dealer said.

CROPS WITHER

Corn prices all fell back slightly after setting contract highs during the previous session but adverse weather in the US continued to underpin prices.

US corn and soybean ratings dropped more than expected, the second straight week of declines, as crops withered in hot and dry conditions around much of the Midwest.

The US Agriculture Department's weekly crop progress report issued after the market closed on Monday showed that the corn was rated 54 percent good to excellent as of Aug. 28, down 3 percentage points from a week earlier.

"The drought in past months and especially the heat wave in July have harmed plant growth.

In Iowa and Illinois, the main growing areas for corn and soybeans, it was hotter than it has been since 1955, with some regions having had only a quarter of the average rainfall," Commerzbank said in a market note on Tuesday.

CBOT December corn fell 0.75 percent to $7.64-1/4 a bushel but remained within striking distance of Monday's contract high of $7.79.

Dealers said the market expected demand rationing following a more than 10 percent jump in prices this month.

"There is no doubt that high prices are having effect on US corn exports and there is no doubt that it is having an effect on wheat-corn substitution," said Adam Davis, a senior analyst at Merricks Capital in Melbourne.

"It will ration feed and exports first and if it is not enough then the price has to go higher to ration ethanol demand."

In addition to harsh weather in the United States, soybean values were underpinned by dryness in China which could curb yields, forcing the world's biggest importer to seek more from the international market.

"It seems like soybean growing areas in China have been too dry in the last two weeks and it is pod filling stage," said Davis. "I would expect some potential downgrades in yield expectations."

US soybeans were rated 57 percent good to excellent, below the average analyst forecast of 58 percent. The 10-year soybean average for late August is 57 percent good to excellent and USDA rated the crop 64 percent good to excellent a year ago.

Copyright Reuters, 2011