U.S. corn was flat in hesitant trade while wheat and soybeans fell on Tuesday, after recent gains, with investors awaiting Thursday's U.S. Department of Agriculture report on global demand and supply for grains and oilseeds for price direction.

Chicago soybeans dipped, following a 3 percent rally as hotter weather in key exporters Argentina and Brazil fuelled concerns about supply shortfalls, and wheat took a pause after buying ahead of expected index fund rebalancing this week.

"Corn is little firm but we don't expect a lot of action from now until the USDA report," said Adam Davis, a senior commodity analyst at Merricks Capital in Melbourne.

"We have had a run up in prices, which was adjustment to hotter and drier weather in Argentina. Now it is a wait for the USDA report for price direction."

Chicago Board of Trade March soy fell 0.41 percent to $12.28 a bushel by 1256 GMT while corn for March was flat at $6.52 a bushel. March wheat fell 0.39 percent to $6.39-1/4 a bushel.

Rain showers are expected in Argentina's main farm areas this week, but climatologists question whether the amount of water to hit the drought-stricken Pampas will be enough to revive key corn and soy crops.

Grain-exporting powerhouse Argentina has been hit by an unforgiving southern hemisphere summer sun, prompting analysts to cut their crop forecasts.

Soybean prices came under additional pressure after Brazil's government raised its forecast for 2011/12 soy production to 71.75 million tonnes, up from the 71.29 million tonnes it estimated in December, thanks to a larger total planted area than in its prior projection.

But Brazil warned that drought conditions, which have raised the possibility of production shortfalls, have not been fully accounted for.


China, the world's largest soy buyer, imported less soybeans in 2011 than the previous year, the first fall in seven years, as Beijing released a large volume of state reserves last year to cool food inflation.

But analysts expect China to accelerate buying of soybeans this year, to between 56 million and 61 million tonnes, to fill depleted state reserves.

"As the market is now looking at 2012, what is the outlook for imports in the New Year? Obviously, supplies are tight out of the United States and are becoming tighter out of South America because of the dry weather," Davis said.

"Certainly, if the weather continues to deteriorate the South American crop, they will have to pay a higher price for beans this year. We are looking at 56 million tonnes of imports in 2012."

European wheat prices eased, reflecting weaker U.S. grains markets and pressured by forecasts of rain showers in Argentina this week although the impact was hard to assess, traders said.

Euronext's benchmark contract March was 1.00 euros or 0.5 percent lower at 200.25 euros a tonne by 1255 GMT. It remained within its bullish channel but without breaking its resistance at 202-203 euros a tonne, traders said.

"The market is hesitant. It needs to follow something so follows the leading market in Chicago," one Euronext trader said.

The market also noted news that wheat exports from Ukraine were likely to fall 17 percent in the 2012/13 season, to 6.3 million tonnes, due to a sharp decrease in this year's wheat harvest after a severe drought, according to analyst UkrAgroConsult.

The market is expecting the USDA to slash its estimates for South American corn and soy output in its report on Thursday.

There has also been a debate over whether the USDA had understated corn used for feed in the United States in the 2011/12 season ending Aug. 31.

CBOT wheat has been also supported by short-covering and buying ahead of portfolio rebalancing by index funds this week.

The annual rebalancing of commodity funds was expected to happen over the course of this week.

According to the latest trade estimates, the S&P GSCI and DJ-UBS funds combined may need to buy roughly 28,000 Chicago Board of Trade wheat contracts while selling 26,000 corn.

The funds may also buy 16,000 soyoil contracts, 2,600 Kansas City Board of Trade wheat, and sell 600 CBOT soybean contracts. (Additional reporting by Valerie Parent and Sybille de La Hamaide in Paris; Editing by Anthony Barker)