U.S. grain prices extended their drop from record highs on Tuesday as forecasts for rain offered soybean crops some relief from the worst drought in half a century, triggering profit-taking from a blistering month-long rally.
While some traders said this week's retreat suggested consumers may have seen the worst of the run-up in prices, which surged by a third or more over the past four weeks, others said it was far too soon to call a top as damage reports on the state of the hard-hit corn harvest were only starting to emerge.
Corn, which at one point fell by its 40-cent daily trading limit, ended down only 8 cents, or 1 per cent as bargain buyers stepped in. Fresh forecasts calling for rain will arrive too late for corn, they said, while analysts continued to cut back their crop estimates as the scale of damage became apparent.
A Reuters poll of 11 analysts on Tuesday projected 2012 average U.S. corn yield at 130.8 bushels per acre, the lowest in 10 years with total production at a six-year low.
"It can rain every day until harvest," said Jason Britt, analyst with Central States Commodities, "On the majority of this corn crop that is out there, you are not going to change yield one iota. This is not a crop saving rain."
Scouts on a Midwest crop tour saw corn plants in western Indiana that failed to form ears and will likely go unharvested.
Hope for beans
But the rains gave hope for a recovery in soybeans, which enter their pod-setting yield stage later than corn. Analysts cut their yield estimates by only 1 per cent from a week ago.
"It (the market) feels fairly confident that we are going to get a change in the weather," said Brian Hoops, analyst for Midwest Market Solutions. "The market is telling us that there is no need to keep as much weather premium as we had in place."
Chicago Board of Trade November soybean futures ended down 52-3/4 cents at $15.69-1/2 a bushel, having fallen as much as the 70-cent daily limit for about an hour in midday trading.
Soybeans have fallen 6.1 per cent so far this week, the biggest two-day decline for the spot contract since February 2011. CBOT December corn closed just 7-1/4 cents lower at $7.78-1/4 a bushel, while the front-month September contract was 24 cents lower at $7.90. CBOT September wheat fell 34 cents to $8.78-3/4 a bushel.
The drops were the second straight day of setbacks for all three commodities and the first time wheat has fallen on consecutive days since the end of May.
"This is probably telling us that the highs are in," said Ted Seifried, a senior market analyst for Zaner Group in Chicago. "People get real antsy up here (at these levels). Guys are nervous. There are a lot of people running for the doors."
Beans may be spared Heavy rain hit the northern U.S. Midwest on Tuesday morning with more forecast for the same area in the next 10 days, an agricultural meteorologist said.
"It's a wetter forecast than we saw earlier," AccuWeather meteorologist Jason Nicholls said. "There's a better chance of rain from Minnesota into Michigan and into the eastern Ohio River Valley."
Nicholls said 1.00 to 1.25 inches (2.5-3.2 cm) of rain could be expected mainly in the northern Midwest over the next 10 days, but it will remain too dry in an area extending from Iowa to central Illinois and back into Missouri and Kansas.
The weather outlook offset a U.S. government report that showed the condition of the corn and soybean crops continued to deteriorate, though damage occurred at a slower pace following scattered rains in the eastern part of the Midwest grain belt.
Crop conditions remained at their lowest levels since 1988, but the rate of decline was slowing. Crop ratings were seen stabilizing in the next few weeks due to the forecasts for improving weather conditions.
Wheat futures, which followed corn higher for the past month, also fell as investors shed positions picked up during the rally. The drought that has plagued the Midwest was expanding into the northern Plains but most of the spring wheat crop was too mature to be damaged.