U.S. corn futures rose nearly two per cent on Wednesday, halting a two-day sell-off, as traders positioned for a keenly awaited U.S. government crop report that may predict the lowest U.S. corn yield in 15 years.
Additional support stemmed from scattered corn harvest reports that were even worse than expected as combines began to roll in parts of the U.S. Midwest following the hottest July on record.
The upturn in corn on the Chicago Board of Trade (CBOT) helped wheat futures to erase early losses, while soybeans rallied on news of U.S. soy export sales and rumours that China may have made fresh purchases.
Corn posted the biggest percentage gain at CBOT. Traders expected the U.S. Department of Agriculture to slash its forecast of the U.S. corn yield in Friday's August supply/demand reports.
Analysts surveyed by Reuters, on average, estimate the U.S. corn yield at 127.3 bushels per acre, which would be the lowest since 1997. In July, USDA pegged the yield at 146 bushels per acre.
Analysts also expected the USDA to lower its forecasts for U.S. soybean production and yield due to drought.
July was the hottest month in the continental United States on record, beating the hottest month in the devastating Dust Bowl summer of 1936, the U.S. National Oceanic and Atmospheric Administration said.
"USDA should have a lot of ammunition to come out with a low yield in August. I think we are putting some risk premium back in the market for that reason," said Dan Cekander with Newedge USA in Chicago.
Reports from early harvested corn fields in scattered areas of the Midwest and the northern Mississippi River Delta were not encouraging.
"These yields are coming in less than what the field sampling and testing would have suggested. So they are surprising people to the downside," said Rich Feltes, vice-president for research with R.J. O'Brien in Chicago.
"You have to be very cautious on this stuff," Feltes said, adding that harvest reports circulating among traders represented a small sample of fields from scattered locations.
However, he said, "we are at a stage in the cycle where the market is hungry for real ground truth."
At the CBOT, benchmark December corn settled up two per cent, at $8.16-1/2 per bushel. Options were active, with traders buying December $9 calls, traders said (all figures US$).
September wheat ended up 1.1 per cent at $8.99-1/4 a bushel, after falling as low as $8.69-1/4.
Most-active November soybeans settled 15-1/2 cents higher at $15.81-1/4 per bushel, with the lightly traded front months, August and September, posting bigger gains.
USDA earlier on Wednesday said private exporters reported sales of 140,000 tonnes of U.S. soybeans to unknown destinations for delivery in the 2012-13 marketing year.
In addition, Feltes cited unconfirmed rumours that China might have bought up to one million tonnes of U.S. soybeans this week.
The upturn in corn buoyed wheat. Wheat had fallen sharply in early moves on diminished concerns that Russia may ban wheat exports due to a drought there, analysts said.
Russian Deputy Prime Minister Dvorkovich said there were no grounds for measures to ban grain exports and new-crop stocks would ensure Russia has enough grain for internal consumption.
The news helped ease concerns about a further shrinking of global wheat exportable stocks, a bearish factor for wheat futures prices that already were pressured by profit-taking.
Nonetheless, a Reuters poll this week found wheat production from Russia, Ukraine and Kazakhstan will drop 30 per cent from last year because of a drought.
The median forecast from analysts and traders puts the aggregate crop for the three Black Sea exporting countries at around 70 million tonnes, versus around 100 million tonnes last year. The region normally supplies about a quarter of the world's wheat export volumes.
Markets were shaken in 2010 when Russia, then the world's third largest wheat exporter, banned exports. Searing heat this year has prompted repeated harvest downgrades, resulting in concern over the amount Russia has available to sell abroad.
Wheat is down six per cent from the recent highs set 2-1/2 weeks ago, corn is down three percent from the record high set on July 20 and soybeans are down nine per cent from the record high also set on July 20.
"A lot of this is positioning before the report, people are taking money out of the market before the report," said Shawn McCambridge with Jefferies Bache in Chicago, referring to USDA's planned release on Friday.
-- Julie Ingwersen and Sam Nelson report on ag commodity markets for Reuters in Chicago. Additional reporting for Reuters by Michael Hogan in Hamburg and Colin Packham in Sydney.