Chicago wheat dropped further on Thursday after tumbling more than 3 percent in the prior session in its sharpest slide in two weeks, as the U.S. boosted its supply outlook following heavy rains.
The U.S. Department of Agriculture said rains across the southern and central U.S. Plains throughout May increased wheat production in that area. The government forecast U.S. winter wheat production at 1.505 billion bushels, up 33 million bushels from its estimate last month.
USDA pegged 2015/16 domestic ending stocks for wheat at 814 million bushels, up from 793 million bushels in May.
"The reality of high U.S. stocks provided a jolt to the market that has become more focussed on potential for weather related crop downgrades and losses," Commonwealth Bank of Australia analyst Tobin Gorey said in a note.
Worries that the rains would hit quality of the hard red winter wheat crop had fuelled a rally in wheat, gaining as much as 12 percent this month, before Wednesday's drop pared that increase to less than 8 percent.
Wheat for July delivery on the Chicago Board of Trade was down 0.2 percent at $5.12-3/4 a bushel by 0617 GMT, after falling 3.5 percent overnight.
Gorey said weather worries persist with forecasters still predicting heavy rainfall that can potentially reduce the quality of U.S. hard red winter wheat while dryness elsewhere remains an issue. "Weather forecasters now expect Canada's dry prairies to get a little rain over the next few days but the amounts are unlikely to be enough to alter the desperate need for more moisture in the region," he said.
Morgan Stanley said while the USDA report "affirmed the adequacy of global supply at present, we remain cognizant of the production risks posed by extended dryness in Canada and Australia, where crops have yet to enter their key stages of development."
CBOT July corn rose 0.2 percent to $3.58 per bushel after dropping 2.1 percent overnight, its deepest slide since March 31. Soybeans edged up 0.2 percent to $9.51-3/4 a bushel. Citing reduced ethanol production, USDA raised its 2015/16 ending stocks estimate for corn to 1.771 billion bushels from 1.746 billion bushels and its 2014/15 ending stocks view to 1.876 billion bushels from 1.851 billion bushels.
Soybean ending stocks for the 2015/16 marketing year were cut by 25 million bushels to 475 million bushels. For 2014/15, USDA trimmed soy end stocks to 330 million bushels from 350 million bushels.