By Gary Wulf

  of DOW JONES NEWSWIRES


  SUPERIOR, Neb. (Dow Jones)--The promise of larger wheat, corn, oat, and
soybean harvests is darkening the outlook for US grain markets, prompting the
US Department of Agriculture to scale back its official forecast of new-crop
prices for each of those key commodities early Friday.

  With reports of record-high hard red winter wheat yields coming out of some
sections of Kansas and Nebraska, the USDA hiked is forecast of 2009 US wheat
production by 96 million bushels, to 2.112 billion bushels, in all.

  "The ending-stocks projection is raised 59 million bushels, as the higher
production forecast more than offsets expected increases in use," said the
agency in its wheat report commentary. "The 2009/10 marketing-year average farm
price is projected at $4.80-5.80 per bushel, down 10 cents on both ends of the
range."

  That theme of larger harvests producing bigger new-crop surpluses was also
echoed in the corn and soybean sectors, convincing USDA to cut its forecast of
2009/10 season-average farm-gate prices for the nation's two most-valuable cash
grains by 55 cents and 70 cents, respectively.

  "Soybean production is projected at 3.26 billion bushels, up 65 million due
to increased harvested area," said the agency, which has also penciled in the
fall corn harvest at 12.29 billion bushels.

  USDA also warned that old-crop corn carryouts - at 1.77 billion bushels -
will be far larger than was once thought, placing pressure on cash corn prices,
as well.

  "Food, seed, and industrial use is lowered 120 million bushels, with
reductions projected for use in ethanol, sweeteners, and starch. Feed and
residual use is lowered 100 million bushels," said USDA. "The marketing-year
average price is projected at $3.95 to $4.15 per bushel, down 15 cents on both
ends of the range, reflecting sharply lower summer price prospects."

  CBOT grain traders predict that the supply/demand report will cause corn
futures to open 3-5 cents lower at the resumption of day-trading. Losses of
5-10 cents are also predicted in soybeans, with wheat falling 4-6 cents, as
well.

  "The markets were looking for negative numbers and they got them," said
Spectrum Commodities analyst Louise Gartner.

  But even with a negative crop report in hand, some experts predict that
futures could be primed for a counterintuitive rally, after watching spot
contracts fall nearly 5% for corn and 10% for soybeans this week.

  "There is some chatter with regards to Friday being one of those
'sell-the-rumor-buy-the-fact' type of days, as the market has been expecting a
bearish report ever since mid-June and the quarterly acreage report helped to
convince them they were correct," said Benson Quinn Commodities corn analyst
Jon Michalscheck.

  Spot soybean basis was continuing to collapse Friday, even though daily
readings of domestic corn, sorghum and wheat basis all averaged within 1 cent
of unchanged entering the week's final trading session. Many major terminal
markets monitored by Dow Jones had slashed spot premiums by 10-80 cents a
bushel, producing an average nationwide basis loss of 17 1/2 cents - one of the
largest daily basis fluctuations to affect any commodity, in recent memory.

  "One important underlying fundamental could be that China has decided to
cease further old-crop soybean imports. Moves may be afoot to supply Chinese
processors with domestic soybeans from government stocks until the new crop -
at vastly lower prices - is available," said AMS Commodities market consultant
Rich Balvanz. "One rumor suggested China might even be ready to export some of
its excess soybean stocks."

  National cash price indices maintained by the Minneapolis Grain Exchange now
stand at $10.41 1/2 for soybeans, reflecting an average basis of -6 cents
relative to Thursday's settlement of Aug CBOT futures. Domestic cash prices
also average $3.04 1/4 for corn (-25 1/4 cents basis Sep CBOT), $4.85 1/4 for
hard red winter wheat (-66 1/4 cents basis KCBT Sep), $4.02 for soft red winter
wheat (-$1.20 1/4 basis CBOT Sep) and $5.74 for hard red spring wheat (-33 1/2
cents basis MGE Sep).


  Crop Weather


  Storms rumbled across portions of southeastern South Dakota, Minnesota and
Iowa Thursday, producing rainfall amounts of 1.00 to 5.00 inches.

  "Unfortunately we saw a lot of that activity accompanied by some very large
hail, particularly in northwestern Iowa and southeastern South Dakota," said
Freese-Notis Weather.

  Strong thunderstorms were still traveling eastward in a line from Kansas City
to Chicago Friday, providing beneficial moisture to developing corn and
soybeans.

  "This is going to be a stormy day in the Midwest, with the Storm Prediction
Center putting the entire central third of the Corn Belt under a slight risk of
severe weather over the next 24 hours," said the service. "The biggest storm
threat will then shift into southern parts of the Corn Belt for tomorrow, but I
still have serious doubts that this rain can ever make it into the heart of the
Delta where rain is so badly needed right now."

  Intense heat is forecast to continue baking the southern Plains through
Tuesday, with some areas seeing daily highs of up to 110 degrees Fahrenheit.