GRAINS-U.S. corn extends losses after USDA report

(Adds comments, updates prices)

* Lower corn prices may see less demand for Australian wheat

* High corn prices seen as key to larger U.S. stockpiles

* Coming up: Reuters/UMich sentiment, June; 1355 GMT

By Bruce Hextall

SYDNEY, July 1 (Reuters) - U.S. corn futures tumbled for the
second day in a row on Friday after a U.S. government report
showed that corn stocks were much higher than the market had
expected and farmers planted the crop on a bigger area than
anticipated.

The harvest month December corn contract dropped over
5 percent on Friday to $5.87-1/2 per bushel, adding to
Thursday's tumble and taking the contract's two-day fall to
nearly 10 percent.

"I think the whole market is confused about the UDSA (U.S.
Department of Agriculture), supply and demand report," said
Chris Kochnaski, a senior trader at Australia's Emerald Group.

"There are probably some factors that could keep markets
bothered such as likely Black Sea exports again and if weather
in the northern harvest goes smoothly it is likely to put
pressure on Aussie feed wheat," said Kochanski.

The September corn contract Cc2 fell to is lowest
permitted for the day, dropping 45 cents to $6.03 before picking
up to $6.07.

Corn's plunge came as the USDA report raised crop prospects
and stock levels, testing the stage for further losses in Asian
and European trading on Friday.

Wheat also fell in early trade as some end-users have
switched to feed wheat as corn was getting too expensive but the
contract was less volatile as wheat supplies are more ample than
corn.

The December wheat contract initially fell over 2
percent before recovering to trade broadly flat by
mid-afternoon, when it traded at $6.59 per bushel, up a touch on
the previous day.

"Part of the problem in Australia I think is also a lack of
capacity to shift Australian wheat out of Australia on the east
coast given logistics," said Kochanski. "So that is likely to
pressure feed wheat prices," he said.

Australia produced a record 23.2 million wheat crop in
2010/11, most of which was grown on the east coast where rain at
harvest reduced large quantities to feed grade quality.

A large amount expected to gobbled up by Asian livestock
feed but Kochanski said Asian buyers still preferred corn
despite its higher price.

Steve Burt, managing director of Pentag Nidera, the
Australian arm of privately owned Dutch firm Nidera, said the
market is currently very challenging.

"We don't know whether it as a bottom or not but there are
certainly lessons to be learned," he said.

The USDA said it planned to re-survey farmers in the states
of Minnesota, Montana, North Dakota and South Dakota on Aug. 11
which may provide a clearer picture of actual planted acreage.

The November soybeans contract Scv1 was up nearly 1
percent to $13.06 a bushel.

(Editing by Balazs Koranyi)