Grains fell for a third straight session on Thursday on mild relief from the severe drought in the U.S. Midwest farm belt, raising questions if the biggest two-month rally in corn since the last major drought in 1988 may have peaked.
Light showers overnight in the Midwest and some switching out of investments to the safe haven of the dollar after the European Central Bank did not announce any steps to boost economic growth in the region weighed on the grain markets.
Chicago Board of Trade new-crop December corn fell 0.6 per cent to end at $7.95-3/4 per bushel. November soy fell 0.8 per cent to $16.16-1/2 a bushel.
September wheat dipped 1.7 per cent to $8.65 a bushel, off the session low of $8.56, sliding 6 per cent over 3 days.
Wheat had been taking additional pressure from a declaration by Russia that it had no plan to curb exports despite a poor harvest due to inclement weather.
Analysts said attention was also turning to the demand side of the equation for evidence that this summer's record high prices had significantly reduced sales of corn and soybeans to various end-users, including export markets.
"There was a risk-off mentality, and there is definitely some demand rationing," said Jim McCormick, a senior trading advisor with Allendale Inc in McHenry County.
The U.S. government's weekly grains export sales report on Thursday provided fresh evidence that importers were turning away from the world's top grain supplier.
Sales of U.S. soybeans to foreign markets last week came to the smallest total in nine months, according to the U.S. Department of Agriculture, while corn sales were 70 per cent smaller than a year earlier.
"The market is losing some of its bullish enthusiasm," said grains analyst Bill Nelson of Doane Agricultural Services in St. Louis, Missouri, wondering whether prices had peaked.
The corn and soybean crops' condition ratings are the worst since the last major drought in 1988.
Mexico bought 1.5 million tonnes of U.S. corn, the USDA confirmed on Thursday for delivery in the next two marketing years. It was the biggest single-day sale in over 20 years and was viewed by analysts as the drought-hit country ensuring it has supplies beyond this year's U.S. harvest.
Caution ahead of Aug. 10 USDA report
Analysts said there was caution in the market ahead of the USDA's supply-demand report on Aug. 10 that could further cut the government's yield and production estimates for U.S. corn and soybeans while revising down its demand forecasts.
Some also expect the USDA to slash its estimate of the number of acres of corn that will be harvested due to severe damage from the drought that covers about two-thirds of the contiguous United States.
Traders said market sentiment could turn bearish if the USDA's downward revisions fall far short of trade expectations, although the department is known for its step-by-step revision to its estimates so as not to gyrate markets.
Closely watched agronomist Michael Cordonnier of Soybeans and Corn Advisor consultancy in Hinsdale, Illinois, said he was expecting 83 million acres of corn to be harvested, compared with the USDA's current estimate of 88.9 million.
He expects farmers to abandon some of their fields due to severe damage from the drought and also harvest a larger portion than usual for silage due to poor yields.
"They are going to plow it under and move on," he said, of fields in too poor a condition to be harvested.
There are also analysts who feel grain prices are in a corrective phase after their drought surge, with corn up about 50 per cent and soybeans 20 per cent since the rally began about six weeks ago.
"There's nothing in the fundamentals that changes the bullish view we've had for the past month. If anything, the outlook's getting worse with U.S. corn yields decreasing, Russia's wheat production decreasing and it's dry in Western Australia," said James Dunsterville, head analyst with Geneva-based consultancy Agrinews.
"On the other hand a market can't continually go up. It has to see corrections, to allow people to take profits."
Additional reporting by Naveen Thukral in Singapore, Sarah McFarlane in London and Sam Nelson in Chicago