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CHICAGO, July 26 (Reuters) - Widespread rains last weekend in the U.S. Corn Belt sparked a record drop in cash corn and soybean prices - a wave of declines that triggered a steep fall in futures at the Chicago Board of Trade this week, grains traders and analysts said.
Cash premiums for corn and soybeans that slowly rose to the highest levels ever in the wake of last summer's drought fell 20 percent this week, with farmers selling old-crop supplies as damp and cool weather benefited the developing new crop.
At a central Iowa processor owned by Cargill Inc, grain buyers on Monday were willing to pay $7.06 per bushel of corn. By Friday, that price fell to $5.57.
And at a closely watched processor owned by Archer Daniels Midland Corp in Decatur, Illinois, merchants sought to buy soybeans at $16.40 per bushel on Monday, a price that fell to $13.58 by the end of the week.
"We knew it was going to happen at some point in time. We just didn't know exactly when. The end users decided that they didn't want to pay up for bushels," said Greg Johnson, a grain merchant at the Andersons Inc, adding that the moves in price were the most extreme in his 30-year career.
"If it keeps raining, we should have plenty of corn and beans," Johnson said.
Values for the "old" crop converge just before farmers begin harvesting the "new" crop. That convergence was expected to be more pronounced this year after last year's drought reduced yields while huge spring plantings and largely favorable weather this year were expected to produce record corn and soybean crops.
Rainfall last weekend brought needed moisture to the developing crops, especially in the big-producing grain states of Iowa and Nebraska where crop conditions had declined two weeks in a row, according to U.S. Agriculture Department data.
The showers gave some farmers more confidence that their crops would produce large yields and they boosted sales of the supplies they had in storage from last year.
The increased farmer sales as well as the rains gave buyers at big trading houses that also include Bunge Ltd and Louis Dreyfus Corp assurance that U.S. supplies will not run out before the harvest.
USDA has estimated the current U.S. corn supply as the smallest in 16 years and soybeans the smallest in nine years.
Lower-than-normal temperatures and occasional showers are also forecast in the next week to 10 days, providing a mostly stress-free outlook for the crops with many corn plants now in their most vulnerable pollination phase.
"We're coming from record levels so that allows you have the record drops," said Terry Linn, analyst at Chicago-based brokerage The Linn Group. "The weekend rains were helpful. We don't have a serious crop threat, we are going to have crops and we are going to have good crops."
The plunge in the so-called basis bids corresponded with a drop in futures - CBOT August soybeans fell four days in a row for the worst sell-off in nearly four years. CBOT September corn futures settled on Friday at the lowest level in the life of the contract.
Many advisory services had long told their clients to sell any supplies left in storage, to limit exposure in a move such as the one seen this week.
It is unknown if the major agribusiness companies known collectively as the ABCDs have enough grain bought to last until harvest, or if cash prices will need to ratchet higher in the coming weeks before the earliest crops are gathered, beginning in states such as Alabama, Louisiana and Texas.
The drop in prices brought farmer selling to a halt, grain merchants said.
"I am not saying we need to get back up to record premiums but we are not buying any grain at these levels," said an export trader for one of the ABCD companies. "We have another month to get through at least."