Corn, wheat fall after gains, corn view bullish

US soybeans touched a three-week low after the US Agriculture Department unexpectedly raised its US crop production outlook by 1 percent in a monthly report.

The USDA in its demand-supply report said US corn yields had deteriorated more than analysts had forecast, falling 4.9 bushels per acre to 148.1 bushels, the lowest in six years.

It painted a marginally brighter outlook for world grain supplies thanks to larger wheat and rice crops.

As a result US corn rebounded on Monday from a five-week low, while wheat fell for a fifth day, hitting a one-month low on a USDA forecast for a large increase in global ending stocks.

"We're hesitating between fundamentals and the economic context," a European futures dealer said. "People are looking at the financial crisis and are also doing the post-USDA analysis, asking if the corn outlook can deteriorate further," he said.

World stocks and the euro fell on Tuesday on euro zone debt concerns with investors focused on growing risks to European banks and the euro.

Analysts said the USDA report was bullish for corn and bearish for wheat and soybean. Goldman Sachs analysts said they expected potential upside to corn prices to be capped at around $8.00 per bushel "due to the potential for large ethanol demand destruction at these prices."

Chicago Board of Trade benchmark December wheat fell 0.65 percent to $7.22-1/2 a bushel by 1135 GMT, after dropping to a low of $7.10-1/4 a bushel on Monday, the lowest since August 10.

December corn fell 0.57 percent to $7.41-1/4 a bushel, while November soy eased 0.61 percent to $13.87-1/2 a bushel after touching $13.82-1/4, the lowest level since August 22

Still, a reduction of 3 percent in the US corn crop after a scorching summer will be largely offset by an abrupt fall in demand from both domestic and export consumers, the USDA said.

It lowered its forecasts for US corn supplies next September 1 to 672 million bushels, besting expectations for a bare-bones 636 million.

European wheat futures eased but prices remained range-bound as the market continued to hesitate between economic uncertainty hitting outside markets and supportive fundamentals for corn.

Benchmark November milling wheat was down 1.25 euros or 0.60 percent at 206.75 euros a tonne by 1135 GMT, in step with US wheat that fell by a similar amount to trade near a one-month low hit on Monday.

BEARISH NEWS FOR WHEAT

The wheat market could come under more pressure with Australia, the world's fourth largest exporter, forecasting record high exports from strong output.

Australian wheat exports could reach a fresh record high of 20.4 million tonnes in 2011/12, with the harvest also seen close to a new peak helped by better growing conditions, the government's chief commodities forecaster said on Tuesday.

This is on top of larger wheat crops in Canada, the European Union and Ukraine, which will help boost global supplies by 6 million tonnes.

"It is bearish for the market as it comes in addition to the USDA report which was bearish," said Ker Chung Yang, an analyst at Phillip Futures in Singapore.

"Prices are likely to come under pressure toward the end of the year when Australia starts selling wheat. I think US and Russia will speed up export before Australia comes in the market."

Russia is likely to export more than 20 million tonnes of grain in the 2011/2012 crop year, First Deputy Prime Minister Viktor Zubkov said on Tuesday.

CBOT December wheat is expected to revisit the Monday low of $7.10-1/4 per bushel as a short-term downtrend is intact, according to technical analysis.

The soybean market is likely to be supported by a threat from frost later this week in the United States.

Frost late this week in the northern US Midwest may harm some of the soybean crop, but harm to the corn crop is less likely because it is more mature, an agricultural meteorologist said.

Soy suffered losses after USDA raised its crop production forecast to 3.085 billion bushels, above trade estimates for 3.032 billion bushels and up from its August estimate of 3.056 billion, due to higher yields.

Copyright Reuters, 2011