* Traders await USDA crop report on Friday
* Weekly crop ratings show soy conditions stabilized
(Updates with closing prices, drop in Argentine corn acreage)
By K.T. Arasu
CHICAGO, Aug 7 (Reuters) - U.S. corn and soybean futures reversed course to end lower on Tuesday as investors took profits on updated weather forecasts for more rainfall in the Midwest farm belt, and on selling ahead of Friday's key government crop report detailing drought damage.
Corn and soybeans fell 1 percent, erasing earlier gains and dragging wheat lower as updated weather outlooks called for rain in Missouri and Illinois, states hit hard by the worst drought in 56 years spanning two-thirds of the contiguous United States.
Analysts said that while the rains might come too late for the corn crop, much of which has passed the crucial pollination stage of reproduction, they might benefit late-planted soybeans as the crop go through the pod-filling stage.
Meteorologist Andy Karst of World Weather Inc said rainfall of 0.50 inch to 1.0 inch was now forecast for Wednesday and Thursday in Missouri, west-central Illinois, western and southern Iowa and southern South Dakota.
"Previously we were expecting 0.20 inch to 0.75 inch," he said, adding that updated outlooks were now showing increased rains for Thursday and Friday of 1.00 or 2.00 inches in northern Indiana, southern Michigan, Ohio and Kentucky.
Earlier outlooks called for 0.50 inch of rain.
"Beans will absolutely benefit from the rains and cool temperatures," said grains analyst Jason Roose of U.S. Commodities in West Des Moines, Iowa.
He also said that the market might be signaling that prices have peaked for now, pending fresh buy signals.
PRICES PEAKED?
"What we are seeing here now may be markets being very mature from a price standpoint," he said, adding crops were also showing signs of not getting any worse from the drought.
The USDA said 29 percent of soybeans remained in good-to-excellent condition for the week ending Aug. 5, snapping six straight weeks in which the crop's health had deteriorated.
The condition of the corn crop dropped 1 percentage point to 23 percent in that category, matching analysts' expectations.
Grain markets were also consolidating before the USDA issues its supply-demand report on Friday.
"The market is consolidating and people are afraid to buy it up here (price levels) because they haven't held," said Mark Kinoff, president of Ceres Hedge in Chicago, alluding to prices having slipped from their peaks in a drought rally.
CBOT corn futures have soared more than 50 percent and soybeans by about 30 percent over the past two months as the worst drought in 56 years devastated the crops.
On Friday, the U.S. Department of Agriculture will update its estimate of the drought damage and analysts polled by Reuters are expecting a big reduction in yields and production.
The analysts are expecting the U.S. corn crop to be the smallest in five years at 11.026 billion bushels, less than the USDA's July estimate of 12.970 billion.
Argentina's 2012/13 corn area is expected to fall 20 percent from the previous year to 3.1 million hectares (7.7 million acres), the Buenos Aires Grains Exchange said on Tuesday.
The decline in the world's second largest corn exporter was pegged to last year's drought cutting farm income, higher input costs and a lack of moisture in a large part of the grain belt.
U.S. corn ending stocks were expected to be the smallest in 17 years next summer, the poll of 21 analysts showed. Soybean ending stocks were seen falling to their lowest levels in at least 32 years.
CBOT November soybeans fell 1.2 percent to end at $15.65-3/4 a bushel. December corn was 0.6 percent lower at $8.00-1/2, while September wheat was down 0.5 percent at $8.89 a bushel.
In Europe, Paris November milling wheat ended 0.2 percent higher at 259.00 euros a tonne.
Prices at 2:46 p.m. CDT (1946 GMT)
LAST NET PCT YTD
CHG CHG CHG
CBOT corn 796.00 -7.00 -0.9% 23.1%
CBOT soy 1605.25 -2.25 -0.1% 33.9%
CBOT meal 512.30 -5.90 -1.1% 65.6%
CBOT soyoil 51.29 -0.19 -0.4% -1.5%
CBOT wheat 889.00 -4.25 -0.5% 36.2%
CBOT rice 1574.50 -20.50 -1.3% 7.8%
EU wheat 259.00 0.50 0.2% 27.9%
US crude 93.39 1.19 1.3% -5.5%
Dow Jones 13,186 68 0.5% 7.9%
Gold 1611.31 0.92 0.1% 3.0%
Euro/dollar 1.2402 0.0002 0.0% -4.2%
Dollar Index 82.2530 -0.0130 0.0% 2.6%
Baltic Freight 836 -7 -0.8% -51.9%
(Additional reporting by Sam Nelson in Chicago, Gus Trompiz in
Paris and Colin Packham in Sydney; editing by Jim Marshall)
Source: http://in.reuters.com/article/2012/08/07/markets-grains-idINL4E8J72PL20120807
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