US wheat extends fall as dollar soars; corn, soy firm

CHICAGO: US wheat prices fell for a fourth day on Friday, dropping nearly 1 percent as the dollar soared, making US wheat less competitive on the global market.

But corn and soybean futures were higher ahead of a key government crop report on Monday that was expected to lower projections for this year's harvest.

"The firmer dollar is causing some longs to bail out of the wheat market," said Country Hedging analyst Sterling Smith.

"The pressure in the commodities in general is stemming from macro concerns about what is to become of Greece, and how soon this problem is going to hit the wall. Are we going to be coming in Monday and looking at a Greek default? We can't rule that out," Smith said.

The US dollar index was up nearly 1 percent on Friday and up 2.6 percent for the week, its biggest weekly rise in more than a year, as investors fretted over discord within the European Central Bank over how to deal with the region's sovereign debt crisis.

At the Chicago Board of Trade as of 12:30 p.m. CDT (1730 GMT), benchmark December wheat was down 5-1/2 cents at $7.32-1/2 a bushel.

Wheat is particularly sensitive to moves in the dollar because about half the US crop is sold for export.

However, trading volume in wheat, corn and soybeans was light as traders awaited direction from the US Department of Agriculture's September crop report on Monday at 8:30 a.m. EDT (1230 GMT).

The expectations for reduced forecasts of the 2011 corn and soy harvests and a further tightening of the domestic supply situation helped insulate corn and soybean prices from the macroeconomic pressures affecting wheat as well as crude oil.

The hottest summer in over half a century is shrinking the US corn crop, which will cut the nation's corn stocks to their smallest in 15 years next summer and raise already high global food prices.

A group of 28 analysts and crop forecasters polled by Reuters ahead of the reports estimated, on average, this year's corn crop at 12.519 billion bushels, down 3 percent from the USDA's outlook in August.

The average US 2011 soybean production estimate was 3.032 billion bushels, down 0.8 percent from USDA's August figure of 3.056 billion. It would be the smallest US soybean crop in three years.

CBOT November soybean futures were up 3-1/2 cents at $14.21-3/4 a bushel and December corn was up 3 cents at $7.37.

The higher moves snapped a streak of three straight days of declines in corn and soybeans.

"Most of the fundamental news is in the market so a little bit of position-squaring ahead of the report is not surprising," said Brett Cooper, a senior manager of markets at FCStone Australia.

Some analysts think the crop size will be further downgraded in future USDA reports, due to the combination of heat stress during pollination and the decimation of corn area by record flooding in the western Midwest.

"While current corn prices are already achieving demand destruction, our lower production forecast points to upside risk to our corn price forecast as well," Goldman Sachs analysts wrote in a note.

Copyright Reuters, 2011