GRAINS-US corn, soy rally on supply worries ahead of USDA

* Corn higher on anticipation of bullish USDA report Friday
* Early U.S. corn harvest reports seen worse than expected
* Soybeans end higher on fresh export demand
* Wheat turns up as corn advances, fears of Russian crop
losses

(Releads, updates with closing prices, fresh analyst quotes)
By Julie Ingwersen and Sam Nelson
CHICAGO, Aug 8 (Reuters) - U.S. corn futures rose nearly 2
percent on Wednesday, halting a two-day sell-off, as traders
positioned for a keenly awaited U.S. government crop report that
may predict the lowest U.S. corn yield in 15 years.
Additional support stemmed from scattered corn harvest
reports that were even worse than expected as combines began to
roll in parts of the U.S. Midwest following the hottest July on
record.
The upturn in corn on the Chicago Board of Trade helped
wheat futures to erase early losses, while soybeans rallied on
news of U.S. soy export sales and rumors that China may have
made fresh purchases.
At the Chicago Board of Trade, corn posted the biggest
percentage gain. Traders expected the U.S. Department of
Agriculture to slash its forecast of the U.S. corn yield in
Friday's August supply/demand reports.
Analysts surveyed by Reuters, on average, estimate the U.S.
corn yield at 127.3 bushels per acre, which would be the lowest
since 1997. In July, USDA pegged the yield at
146 bushels per acre.
Analysts also expected the USDA to lower its forecasts for
U.S. soybean production and yield due to drought.
July was the hottest month in the continental United States
on record, beating the hottest month in the devastating Dust
Bowl summer of 1936, the U.S. National Oceanic and Atmospheric
Administration said.
"USDA should have a lot of ammunition to come out with a low
yield in August. I think we are putting some risk premium back
in the market for that reason," said Dan Cekander with Newedge
USA in Chicago.
Reports from early harvested corn fields in scattered areas
of the Midwest and the northern Mississippi River Delta were not
encouraging.
"These yields are coming in less than what the field
sampling and testing would have suggested. So they are
surprising people to the downside," said Rich Feltes, vice
president for research with R.J. O'Brien in Chicago.
"You have to be very cautious on this stuff," Feltes said,
adding that harvest reports circulating among traders
represented a small sample of fields from scattered locations.
However, he said, "we are at a stage in the cycle where the
market is hungry for real ground truth."
At the CBOT, benchmark December corn settled up 16
cents, or 2 percent, at $8.16-1/2 per bushel. Options were
active, with traders buying December $9 calls, traders said.
September wheat ended up 10-1/4 cents, or 1.1 percent,
at $8.99-1/4 a bushel, after falling as low as $8.69-1/4.
Most-active November soybeans settled 15-1/2 cents
higher at $15.81-1/4 per bushel, with the lightly traded front
months, August and September, posting bigger gains.
The USDA earlier on Wednesday said private exporters
reported sales of 140,000 tonnes of U.S. soybeans to unknown
destinations for delivery in the 2012/13 marketing year.
In addition, Feltes cited unconfirmed rumors that China
might have bought up to 1 million tonnes of U.S. soybeans this
week.

WHEAT RECOVERS, LED BY CORN, RUSSIAN CROP FEARS
The upturn in corn buoyed wheat. Wheat had fallen sharply in
early moves on diminished concerns that Russia may ban wheat
exports due to a drought there, analysts said.
Russian Deputy Prime Minister Dvorkovich said there were no
grounds for measures to ban grain exports and new-crop stocks
would ensure Russia has enough grain for internal consumption.
The news helped ease concerns about a further shrinking of
global wheat exportable stocks, a bearish factor for wheat
futures prices that already were pressured by profit-taking.
Nonetheless, a Reuters poll this week found wheat production
from Russia, Ukraine and Kazakhstan will drop 30 percent from
last year because of a drought.
The median forecast from analysts and traders puts the
aggregate crop for the three Black Sea exporting countries at
around 70 million tonnes, versus around 100 million tonnes last
year. The region normally supplies about a quarter of the
world's wheat export volumes.
Markets were shaken in 2010 when Russia, then the world's
third largest wheat exporter, banned exports. Searing heat this
year has prompted repeated harvest downgrades, resulting in
concern over the amount Russia has available to sell abroad.
Wheat is down 6 percent from the recent highs set 2-1/2
weeks ago, corn is down 3 percent from the record high set on
July 20 and soybeans are down 9 percent from the record high
also set on July 20.
"A lot of this is positioning before the report, people are
taking money out of the market before the report," said Shawn
McCambridge with Jefferies Bache in Chicago, referring to USDA's
planned release on Friday.

Prices at 2:27 p.m. CDT (1927 GMT)
LAST NET PCT YTD
CHG CHG CHG
CBOT corn 810.75 14.75 1.9% 25.4%
CBOT soy 1630.00 24.75 1.5% 36.0%
CBOT meal 521.90 9.60 1.9% 68.7%
CBOT soyoil 51.58 0.29 0.6% -1.0%
CBOT wheat 899.25 10.25 1.2% 37.8%
CBOT rice 1568.50 -6.00 -0.4% 7.4%
EU wheat 259.75 1.00 0.4% 28.3%

US crude 93.37 -0.30 -0.3% -5.5%
Dow Jones 13,187 19 0.1% 7.9%
Gold 1614.10 3.42 0.2% 3.2%
Euro/dollar 1.2361 -0.0039 -0.3% -4.5%
Dollar Index 82.3600 0.1500 0.2% 2.7%
Baltic Freight 812 -24 -2.9% -53.3%

(Additional reporting by Michael Hogan in Hamburg and Colin
Packham in Sydney; Editing by Bob Burgdorfer and Marguerita
Choy)