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U.S. soy erases gains as greenback rallies

U.S. soybeans erased the day’s gains to end slightly lower on Tuesday before a key U.S. government crop report as a rally in the dollar overwhelmed expectations that a move by China to stimulate the economy could increase demand.

Technical buying had supported the benchmark November contract — which has tumbled 13 per cent from its all-time high of $17.94-3/4 per bushel set on Sept. 4 — after it closed above the 100-day moving average of $15.36-1/4 on Monday (all figures US$).

The U.S. Department of Agriculture’s monthly report on Thursday could help chart the next course of the drought rally that took prices to record highs this summer before retreating amid profit-taking and pressure from the advancing harvest.

In a weekly report on Tuesday, USDA said farmers had harvested 69 per cent of this year’s corn crop, just under the 70 per cent average expected by 17 analysts polled by Reuters.

The crop progress report said 58 per cent of the soybean crop was harvested as of Sunday, below expectations for 61 per cent.

The tally compares with 54 per cent and 41 per cent, respectively, in the previous week.

Corn at the Chicago Board of Trade finished flat while wheat pared gains after the dollar strengthened, climbing 0.59 per cent by 3:17 p.m. CT on "safe haven" buying amid nervousness over U.S. third-quarter corporate earnings.

The dollar has an inverse relationship with grains, as a stronger greenback, the currency of choice in global commodity markets, tends to raise costs in importing countries.

"There was a brief moment of excitement, but people began taking money off the table. They are getting ready for the (USDA) report more than anything," said Jack Scoville, vice-president of Price Futures Group in Chicago.

Wheat was supported by expectations the USDA would reduce its estimate of production in leading exporters Australia and Russia and trim its forecast of global wheat stocks.

November soybeans, which finished 1.5 per cent off the day’s high, were supported earlier by China injecting cash into its currency markets, which was seen by analysts as a possible precursor to more stimulus the world’s No. 2 economy.

China stimulus

"A little stimulus like this goes a long way in the current economic environment," said Sterling Smith, market specialist for Citigroup.

China, the top importer of soybeans and the No. 1 market for the United States, pumped 265 billion yuan (US$42.2 billion) into the money markets — the second-largest gross injection on record. The move raised hopes the world’s second-largest economy could do even more to boost growth.

The country has continued to buy U.S. soybeans despite the rise in prices, and rumours circulated on Tuesday that Chinese processors had purchased two to three U.S. cargoes.

Traders were also buying to position themselves before the USDA monthly report on Thursday.

"We are seeing positioning before the USDA report," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.

November soybeans ended at $15.50 a bushel. December corn was unchanged at $7.42, while December wheat ended 3-1/4 cents higher at $8.64-1/4.

In Europe, Paris-based milling wheat futures were higher, with benchmark November up 1.75 euro, or 0.7 per cent, at 261.50 euros a tonne.

USDA outlook

USDA is expected to show the 2012-13 corn harvest at the smallest in six years and corn supplies could dwindle to 17-year lows by next summer as a result of the worst U.S. drought in 56 years, a Reuters poll showed.

On average, 26 analysts polled by Reuters put this year’s corn crop at 10.601 billion bushels, down 126 million bushels, or 1.2 per cent, from USDA’s September outlook.

Analysts pegged ending stocks of corn for the current 2012-13 marketing year at 648 million bushels, down 85 million bushels, or 11.6 per cent, from the September figure. It would represent the tightest supply since the 1995-96 marketing year.

The soybean crop was pegged at 2.759 billion bushels, based on the average in the Reuters survey. The average yield was seen at 37.006 bushels per acre, up 4.8 per cent from a month ago.

— K.T. Arasu writes for Reuters from Chicago. Additional reporting for Reuters by Mark Weinraub and Sam Nelson in Chicago, Colin Packham in Sydney, Sybille de La Hamaide in Paris and Nigel Hunt in London.

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