U.S. wheat futures slid to an eight-month low and corn closed at a six-week low on Thursday as a winter snowstorm dumped moisture on key growing areas that have struggled with dryness for months.
Nearly a foot or more of snow fell across Oklahoma and Kansas in the last 24 hours, and more was expected. The states are top producers of hard red winter wheat, which is used to make bread.
"It's the mighty snowstorm," said Jerry Gidel, chief feed grains analyst for Rice Dairy.
At the Chicago Board of Trade (CBOT), March wheat lost 2.3 per cent to $7.21-1/4 per bushel. March corn dropped 1.4 per cent to $6.90-3/4 a bushel (all figures US$).
The United States is coming out of its worst drought in more than half a century, and farmers in key states have worried that their crops will not produce large yields because of dryness.
However, conditions are on the upswing for corn and soybean production, the U.S. Department of Agriculture's chief economist said at an annual outlook conference in Washington D.C.
The USDA forecast the nation's corn crop at 14.35 billion bushels, up 35 per cent on the year, and soybean output at 3.405 billion bushels, up 13 per cent.
Season-average prices for 2013/14 are expected to tumble 33 per cent to $4.80 per bushel for U.S. corn and 27 per cent to $10.50 for soybeans, according to the department.
"We have the drought continuing to shrink, with the evidence of some big storms coming through," said Don Roose, president of U.S. Commodities.
Still, the drought has not ended.
The country needs "several more storms like this to really start turning the tide," said Brian Fuchs, a climatologist with the University of Nebraska Drought Mitigation Center.
Commodities succumbed to broad pressure from worries the U.S. central bank will scale back its stimulus program sooner than expected, which could dry up liquidity in a range of markets, traders said.
Minutes from the U.S. Federal Reserve's most recent policy meeting, released on Wednesday, suggested the bank might have to slow or stop buying bonds before seeing the pickup in employment the program is designed to deliver.
"The government's sending a signal that their stimulus program is ending," Roose said. "We've got a hangover from that."
Commodity funds sold an estimated 10,000 corn contracts and 6,000 wheat contracts and bought 4,000 soybean contracts, according to trade sources.
Export demand helped soybean futures advance. March soybeans added 0.3 per cent to close at a two-week high of $14.87-3/4 a bushel.
Private exporters struck deals to sell 130,450 tonnes of U.S. soybeans and 110,000 tonnes of U.S. soft red winter wheat to unknown destinations, with delivery of both sales split between this marketing year and next year, according to USDA.
More demand is expected to flow to the United States because of shipping problems in Brazil, which is projected to be the world's top soy exporter.
Two to three times more ships are lined up to load crops at Brazil's two main ports than a year ago, and a six-hour dock workers' strike is set for Friday.
USDA will issue its weekly export sales report on Friday, one day later than usual due to the Presidents Day holiday on Monday.
Traders expect sales to be 300,000 to 600,000 tonnes for soybeans; 400,000 to 600,000 tonnes for wheat; and 150,000 to 350,000 tonnes for corn.
-- Tom Polansek covers the futures markets for Reuters in Chicago. Additional reporting for Reuters by Carey Gillam in Kansas City.