* Soybeans drop 3 pct, corn eases lower
* Better-than-expected weekend rains in Midwest
* Another rain system forecast for Wednesday, Thursday
* Investors eye USDA supply-demand report for trading cues
By K.T. Arasu
CHICAGO, Aug 6 Soybeans tumbled nearly 3 percent Monday for their biggest drop in 11 days as widespread weekend showers in the U.S. Midwest brought mild relief to the crop, but the market was still up 27 percent due to the drought rally of the past two months.
Corn futures pared their day's losses as traders positioned themselves ahead of Friday's supply-demand report in which the U.S. Department of Agriculture is widely expected to slash its estimates of this year's U.S. corn and soybean crops in the wake of a severe drought.
"Some areas received very beneficial rains but at this point they are not going to benefit corn as much as they will beans," said grains analyst Dax Wedemeyer of U.S. Commodities in West Des Moines, Iowa. "Corn will move in a tight range."
The USDA's crop progress report, issued after the market closed, showed that corn condition ratings fell 1 percentage point to 23 percent in the good-to-excellent category, while soybeans held steady at 29 percent in the same grouping.
Analysts polled by Reuters had expected corn and soybean condition ratings to fall 1 percentage point.
The marginal decline in corn could signal that the worst of the damage from the most extensive drought in 56 years is nearing an end.
Some corn harvesting is under way in the South, where there were anecdotal accounts of better-than-expected corn yields in states like Mississippi and Arkansas. There was trade talk that these supplies could be shipped to the Midwest, where the drought has devastated the crops.
"There are people who are already doing the math to see if they can bring in corn from the South," said an export trader based in the Midwest. "They would need to look at additional costs to move the corn from the river to their plants using trucks or by rail," said the trader who declined to be identified.
Corn and soybean crops harvested in the South are typically channeled to export terminals at the U.S. Gulf as grain companies wait for the main harvest to begin in the Midwest which grows 75 percent of the two crops in the United States.
The tight supplies of corn this year has led livestock giant Smithfield Foods to import supplies from Brazil. On Monday, top U.S. meat company Tyson Foods Inc said it too would import corn from Brazil if prices were attractive.
"We run the math constantly and when it works that's an avenue for us," said Donnie Smith, president and chief executive officer of Tyson Foods on a conference call with analysts.
Meteorologist John Dee of Global Weather Monitoring said Monday the weekend rains that ranged from 0.20 to 0.80 inch (5-20 millimeters) fell on more than 85 percent of the Midwest farm belt, and another similar system could bring more rain on Wednesday and Thursday.
The high heat that scorched the Midwest in July could also be moderating, with highs later this week and early next week forecast in the 80s degrees Fahrenheit.
About two-thirds of the contiguous United States is in drought, which has rallied corn futures more than 50 percent over the past two months. Chicago wheat futures have rallied nearly 34 percent.
CBOT November soybeans fell 2.7 percent to end at $15.84-1/4 a bushel. Spot August was down 3 percent at $16.07-1/2, off the record high $17.77-3/4 set on July 20.
December corn fell 0.3 percent to end at $8.05 a bushel, while spot-month September was down 0.9 percent at $8.03. The all-time high of $8.28-3/4 was set on July 20.
September wheat rose 0.2 percent to $8.93-1/4 a bushel.
In Paris, benchmark November milling wheat was down 1 percent at 258.50 euros a tonne.