Chicago corn edged lower on Monday as the market took a breather from a drought-driven rally that lifted prices to an all-time high in the last session and intensified fears of a food supply crisis.
Analysts said the market will be focused on demand rationing as prices are expected to remain high due to tight supplies of new-crop corn, which has gained 60 percent since mid-June.
Soybeans slid nearly 1 percent after rising on Friday, while wheat extended losses to nearly 4 percent over two sessions on smaller-than-expected cuts in global wheat production.
"It is a little bit of profit-taking today and we are seeing a bit of a buy the rumour and sell the fact scenario," said Luke Mathews, a commodities strategist at the Commonwealth Bank of Australia.
"The fundamental picture is very bullish as the U.S. and global corn supplies are critically tight."
Chicago Board of Trade new-crop December corn fell 0.74 percent to $8.03-1/4 a bushel by 1030 GMT and November soy also lost 0.88 percent to $16.28-3/4 a bushel. September wheat lost 1.36 percent to $8.73-1/4 a bushel.
The front-month corn contract hit a record high of $8.43-3/4 a bushel on Friday. Benchmark November milling wheat on the Paris-based futures market was down 4.50 euros or 1.70 percent at 259.50 euros a tonne.
On Friday, the U.S. Department of Agriculture (USDA) cut corn production in the United States by 17 percent, in its first survey-based report detailing damage from the country's drought, intensifying fears that the world is heading for a repeat of the 2008 food supply crisis.
The USDA pegged the U.S. corn yield at 123.4 bushels per acre, below the average trade estimate of 127.3 bushels and down from its July estimate of 146 bushels. The department has now slashed the corn yield by a total 42.6 bushels in two months.
The aggressive stance of the USDA reflected the severity of the damage from the drought that is centered in the U.S. Midwest farm belt, which grows 75 percent of the country's corn and soy crops that are used for food, feed and biofuels.
"There was obviously some severe crop damage," said Erin FitzPatrick, an analyst at Rabobank.
"We will move towards demand rationing now. We need to see some serious demand rationing across the board and that includes the ethanol sector and biofuels sector."
The rally in grain prices has renewed the food-versus-fuel debate centered on the U.S. ethanol mandate as 40 percent of the corn crop will be made into fuel for cars and trucks.
France, the United States and G20 president Mexico will hold a conference call at the end of August to discuss whether an emergency international meeting is required to tackle soaring grain prices caused by the worst U.S. drought in half a century.
"According to the estimates of the USDA, the high prices are also ensuring that only 4.5 billion bushels of corn will be used this year for ethanol production, 400 million bushels less than was forecast just last month," Germany's Commerzbank said in a statement.
"The government is now also considering revising its ambitious targets for the use of biofuels. Any decision to relax the ethanol guidelines could put the price under sustained and considerable pressure."
The wheat market has come under pressure as the USDA raised its estimates for U.S. production and ending stocks while keeping exports unchanged. Wheat prices have dropped for the last three weeks but are up more than 40 percent since mid-June.
The market was also pressured by smaller-than-expected cuts in global wheat production, especially in Russia, despite inclement weather dimming eastern Europe crop prospects.
USDA cut wheat production in the former Soviet Union states by 5.6 million tonnes to 82.96 million, and dropped Russian output by 6 million tonnes to 43 million.
There have been persistent rumours that Russia could curb exports to preserve supplies, as it did in 2010 when its crops were devastated by a drought. But over the weekend, Egypt, the world's biggest wheat importer, bought 120,000 tonnes of Russian wheat.
The USDA U.S. corn production this year was cut to 10.779 billion bushels, below trade estimates for 11.026 billion. The soy crop was pegged at 2.692 billion bushels, below estimates for 2.817 billion. The department pegged the soybean yield at 36.1 bushels per acre, below expectations for 37.8 bushels.