CHICAGO U.S. wheat futures at the Chicago Board of Trade fell on Tuesday as forecasts for large U.S. crop production weighed on prices following a run-up to two-year highs, traders said.
But expectations for sharp crop reductions in Russia and other countries in eastern Europe due to a severe drought continued to support prices, particularly in deferred months.
Huge stockpiles of U.S. supplies provided bearish fodder for traders who thought the recent surge was overdone.
"We are in a situation where on the breaks, I am certain there are going to be some world end users booking wheat," said Jim Hemminger, senior risk manager with Top Third Ag Marketing in Chicago. "On the rallies, there are going to be producers selling into the rallies that are going to help cap it."
At 11:14 a.m. CDT (1614 GMT), the benchmark Chicago Board of Trade September soft red winter wheat futures contract was down 5 cents at $7.07-1/2 a bushel. But the new crop July contract was up 5-3/4 cents at $7.20-1/4 a bushel.
Kansas City Board of Trade and Minneapolis Grain Exchange contracts, which represent higher-protein wheat varieties than the CBOT futures, also were trading higher.
The drought in eastern Europe shows no sign of respite, with a senior Russian weather official predicting Tuesday that the heat in most parts of European Russia is likely to continue over the next 10 days.
Expectations for bumper U.S. crops also weighed on corn and soybean futures, which were trading lower for the second straight day.
The U.S. Agriculture Department surprised analysts on Monday afternoon, holding its weekly condition ratings on corn and soybeans steady despite scorching heat in southern growing areas that was expected to damage crops.
CBOT August soybeans were down 6-1/2 cents at $10.42 a bushel while the new crop November contract was off 4-1/2 cents at $10.30-1/2 a bushel. CBOT September corn dropped 3-1/2 cents to $3.99-1/2 a bushel.
Traders also noted some positioning ahead of the USDA's upcoming supply and demand report, expected to raise forecasts for U.S. wheat and corn crops.
"The U.S. winter wheat harvest concluded quite strongly, spring wheat conditions are at record levels and I also think we've got some upside in the corn yield," Rabobank analyst Luke Chandler said. "That (a bearish USDA report) will take a little bit of the fire out from underneath the wheat rally."
Analysts were expecting the USDA's forecasts for U.S. wheat, corn and soybean production to rise when it releases its monthly estimate on Thursday morning. But U.S. ending stocks were seen falling as global crop woes will force end users to look to the United States to satisfy their supply needs.
World wheat production was expected to come in at 650.02 million tonnes, down from the USDA's July forecast of 661.07 million tonnes, according to a Reuters survey.
"The market is extremely nervous because we're on the eve of a USDA report and because we're at very high price levels," one French trader said.
Russia has announced a ban on grain exports while damage to its crops from the worst drought in 130 years is assessed, forcing some buyers to look for alternative suppliers. Importers have, however, been reluctant to commit to deals at prices which remain more than 50 percent higher than those seen at the end of June.
But private exporters reported the sale of 120,000 tonnes of U.S. wheat, mainly to China and Egypt, the USDA said on Tuesday morning.
Turkey's state grain office said Tuesday it had sufficient wheat stocks while Jordan said it had enough wheat stocks to cover its needs for six months but would be forced to switch to more expensive U.S. or European grains.