Wheat falls on forecasts for U.S., China rains

MARKETS-GRAINS (UPDATE 4)

* Rains in U.S. Plains may offset poor wheat ratings

* Corn, soybeans rally late on new-month fund buying

* Corn extends near-32-month high

* Volume light in grains after volatile trade last week (Updates with closing U.S. prices, quotes)

By Julie Ingwersen

CHICAGO, March 1 (Reuters) - U.S. wheat futures set back on Tuesday after a two-day rise as rain in China's wheat belt and forecasts for much-needed moisture in the U.S. Plains soothed fears about prospects for the new winter crop.

But corn and soybeans shook off early weakness and rallied into the close, with front-month corn setting a near-32-month high on a flurry of commodity fund buying for the new month.

Spillover strength from energy markets added support as U.S. crude oil rose above $99 a barrel.

Volume was light across the Chicago Board of Trade grains floor, down 20 to 25 percent from the 30-day averages in corn, wheat and soybeans. The subdued session followed a stretch of volatile trades last week.

CBOT May wheat ended down 6-3/4 cents at $8.10-1/4 per bushel. Most-active May corn closed up 4-1/2 cents at $7.35-1/2 a bushel and May soybeans ended up 10-1/2 cents at $13.75-1/4 a bushel.

Wheat emerged as the biggest mover on a percentage basis.

The market focused on the weather, with some forecasts calling for rain in dry areas of the U.S. Plains this weekend. Eastern and central portions of the Plains have had moisture over the winter but western sections of Kansas, the top U.S. winter wheat state, remain dry.

The U.S. Department of Agriculture, in a monthly crop condition report late on Monday, graded 40 percent of the Kansas wheat crop as in poor to very poor condition.

"For the first time in three to four weeks, forecasters now have a rain forecast for the western Plains, where the drought is. That's more important than the weak ratings," said Rich Nelson, analyst with Allendale Inc in McHenry, Illinois.

In China, the wheat acreage affected by a drought in eight provinces has fallen by two-thirds since Feb. 8, to 2.52 million hectares (6.2 million acres), the Ministry of Water Resources said this week.

"China picked up a little more rain, 0.10 to 0.50 inch (0.3-1.3 cm) yesterday, so that gives them two days of light rain," Nelson said.

CORN AND SOYBEANS

Corn futures rallied to new highs on bullish fundamentals, after the USDA last week said huge U.S. corn plantings this spring were unlikely to increase razor-thin stocks much.

"The reason this (market) can be sustained is that the commercial interest is there as the dominant factor," said Shawn McCambridge with Prudential Bache Commodities.

Along with commercials, commodity funds were moderate net buyers of some 4,000 corn contracts, traders estimated.

Strength in crude oil played a role, raising prospects for exports of U.S. ethanol, including unconfirmed talk of possible sales to Brazil.

"When you think about the price of sugar -- and they are getting into the tail end of their crop -- it probably makes sense," McCambridge said. Brazil makes most of its ethanol from sugarcane, whereas U.S. ethanol is distilled from corn.

"That (export demand) will drive the demand and production, because domestically we are pretty tapped out as to what we can use," McCambridge said, referring to ethanol.

Trade in soybeans was choppy. Seasonal pressure from the South American soy harvest weighed on prices at times, and the newsletter Oil World raised its forecast of the Argentine soybean crop to 48.5 million tonnes, up half a million tonnes.

But harvest delays in Brazil helped underpin the market. Brazil's main grain port of Paranagua resumed normal loading of grains on Tuesday, after heavy rains interrupted operations the previous day.

Some traders said China was buying U.S. soybeans this week to fill gaps as a result of the delays in Brazil.

(Source: http://www.forexyard.com/en/news/GRAINS-Wheat-falls-on-forecasts-for-China-rains-2011-03-01T210957Z-US)