U.S. soybean futures plunged three per cent to their lowest level in more than four months on Friday after the government's latest forecast of this year's crop topped expectations, traders said.
Wheat also was weak, falling 1.7 per cent, as selling on the U.S. Agriculture Department's surprise boost to global and domestic supply snapped a four session winning streak.
Corn futures were close to unchanged, with the market boosted by technical buying as prices failed to breach a key support level after dipping in early trading.
The USDA forecast soybean production at 2.971 billion bushels, up from its October estimate of 2.86 billion and above analysts' expectations for 2.892 billion. The new yield forecast of 39.3 bushels per acre, up from 37.8 in October, bested the market consensus of 38.164 bushels per acre.
The change in the yield forecast, a record for the November report, shocked the market as a fast harvest showed that the damage from the worst Midwest drought in more than 50 years was not as bad as feared.
"Soybeans are taking the hit right now. The yield jump came off as a little bit of a surprise here," said Karl Setzer, a commodity trading adviser at MaxYield Co-operative. "It is more of a knee-jerk reaction."
Chicago Board of Trade January soybean futures settled 44-1/2 cents lower at $14.51-1/4 a bushel. The front-month contract traded as low as $14.49, its weakest level since June 29 (all figures US$).
For the week, soybeans shed nearly five per cent in the worst performance in 1-1/2 months.
Soybeans have fallen 18.4 percent from their all-time high of $17.94-3/4 hit in early September. The losses of the last two months have left prices just $1 per bushel higher than they were when drought descended on the U.S. Midwest in mid-June. The USDA's latest forecast puts crop expectations 234 million bushels below its pre-drought estimate.
"Everybody has been operating under the worst-case scenario mentality," said Nicole Thomas, commodity analyst for McKeany-Flavel. "Little by little, the soy numbers trickling in for the U.S. market are getting better. We are able to manage demand, even with it being reasonably strong.
CBOT December corn ended 2-1/2 cents lower at $7.38-3/4 a bushel, ending the week flat. Prices had surged through key technical resistance at its 30-day and 40-day moving averages earlier in the day but the rally stalled as the contract approached its 100-day and 50-day moving average, spurring a round of profit taking.
Corn attracted buying after the market dipped close to its fall low of $7.32 per bushel, which represents a 62 per cent Fibonacci retracement from its fourth-quarter peak, shortly after the release of the report.
"That has been a major level of support," said Ted Seifried, senior market analyst at the Zaner Group. "Once we failed to get through it again here today, we bounced a little bit off the low and now we are seeing some technical buying come into the market."
Corn has tested, but failed to fall below, $7.32 a bushel seven times in the last six weeks.
Traders also said the increase in USDA's corn production forecast was only slightly above expectations and not viewed as a fresh bearish input.
"It (corn) didn't break hard and fast on the numbers. If it's not a 'sell,' it's a 'buy,'" said Jeff Thompson, broker at ABM Amro in Chicago.
CBOT December wheat finished 16 cents lower at $8.86-1/2 a bushel but gained 2.5 per cent for the week in the best performance since July.
Global wheat ending stocks were pegged at 174.18 million tonnes, up from the October estimate of 173 million tonnes and better than the 170.969 million average of analysts' estimates in a Reuters survey. U.S. wheat ending stocks were seen at 704 million bushels, up 50 million bushels from the October view.
"It makes the market more comfortable that the supply is still there and we need to increase demand," said Shawn McCambridge, grains analyst with Jefferies Bache.
Concerns about smaller-than-expected crops had sparked a four-day rally in wheat futures earlier this week amid hopes that a tightening supply situation would boost export demand for U.S. offerings.
-- Mark Weinraub covers the grain futures markets for Reuters in Chicago. Additional reporting for Reuters by Karl Plume and Michael Hirtzer.