The big crop report in a week's time came firmly into focus on Friday – and a key preview did not make for happy reading, driving grain and oilseed contracts firmly into negative territory.

The US Department of Agriculture will next Friday release its latest monthly Wasde report on world crop supply and demand.

Wasdes are key events of the agricultural commodities calendar anyway.

But this one particularly so, given that it is deemed likely to adjust estimates for domestic corn and soybean crops at a time when, with stocks so thin, any revisions can have a big impact on the apparent tightness of supplies.

'More pivotal than usual'

OK, the market is due next week to witness fund rebalancing, when index funds sell top performing commodities of last year, and buy laggards, to readjust portfolio weightings back to those of the index they track.

But "we have to view the rebalancing as market noise", Paul Georgy, president at broker Allendale, said.

"The real focus will be the USDA final production numbers for 2012 and their supply and demand estimates."

Rival broker US Commodities said that "the market is now more focused on the January 11 crop report'.

At Country Futures, Darrell Holaday said: "Next week's report is very important and will be more pivotal than most January reports."

'It is a market mover'

It may be little surprising that investors are growing quite so fixated by the Wasde, given the history of January versions provoking big moves in prices.

"It is a market mover. In five of the last six years the market has had limit moves," three with Chicago corn prices falling the exchange maximum, and two rising the limit, US Commodities said.

And the idea of next week's report proving a price depressant gained ground when Informa Economics raised its estimates for both the 2012 US corn harvest, by 75m bushels to 10.8bn bushels, and the soybean crop, by 69m bushels to 3.04bn bushels.

And all this when investors were already in selling mood, with some talk of funds preferring equities to agricultural commodities, now that South America appears to be breaking the cycle of poor weather in major crop producing areas.

Brazil harvest talk

Indeed, while early harvest yields in Brazil have been merely in line with last year's, at 36-42 bushels per acre, "they are expected to improve to 50 bushels per acre as the harvest spreads south", US Commodities said.

"South American weather for now is non-threatening," the broker added.

In fact, there were other interpretations of Brazil's harvest.

"Early soybean yields in Mato Grasso are slightly below a year ago because of dryness," Darrell Holaday said.

"There are other areas that are getting drier and the forecasts for next week are getting warmer and drier."

Dollar retreats

But bears very much held the reins in grains, even after the dollar fell back.

US monthly job creation data at a promising 155,000 supported hopes for the economy without being strong enough to provoke concerns of an imminent pullback in ultra-easy US monetary policy, a withdrawal which in reducing the risk of currency debasement would likely be seen positive for th dollar.

The dollar in fact stood 0.2% lower, so making dollar-denominated exports, including many agricultural commodities, that much more affordable.

Row crops drop

US weekly crop export sale data gave bears more ammunition, in showing a corn figure of 49,000 tonnes, well below forecasts of at least twice that much.

Corn for March closed down 1.3% at $6.80 ¼ a bushel, its weakest finish since June, and feeling extra pressure after falling below its 200-day moving average for the first time in six months.

US soybean export sales were better, at 434,000 tonnes, towards the top end of market estimates.

Still, Chicago's March soybean contract closed down 1.4% at $13.67 ¼ a bushel, at least recovering from an intraday low of $13.56 a bushel which matched a six-month low.

Wheat falls too

Wheat, ultimately, did a little better, with its own March contract falling 1.1% to $7.47 ¼ a bushel, also a six-month closing low.

But then Informa cut its forecast for Argentina's wheat harvest, by 2m tonnes to 9.5m tonnes, a figure below that of the Buenos Aires grains exchange, at 9.8m tonnes, let alone the USDA, at 11.5m tonnes.

Informa also cut its estimate of last year's Russian crop by 1m tonnes to 38m tonnes.

Still, that could not prevent a fall in Paris wheat prices either, by 1.3% to E243.50 a tonne for March delivery, also a six-month closing low.

London wheat for May eased 0.5% to £207.40 a tonne, a two-month closing low.

Cocoa to rebound?

Many soft commodities were in downward mode too, with cocoa falling 1.6% to $2,220 a tonne in New York, for March delivery, and 0.7% to £1,432 a tonne in London, for the May contract, after hitting an eight-month low earlier.

The decline was attributed to selling of a crop in which hedge funds retain a relatively large net long position, offering scope for long liquidation.

 Indeed, Commerzbank was sanguine on fundamentals, after Ivory Coast's Coffee and Cocoa Council said the domestic cocoa crop would fall 13% in 2012-13, and because of structural factors, such as a lack of investment in new trees, rather than weather.

"Political uncertainty, the civil war and low local prices have discouraged farmers from investing to maintain and expand their cocoa plantations," Commerzbank said.

"It is thus very unlikely that there will be any short-term solution to the problem.

"The lower harvest in Ivory Coast, the world's largest producer country, is likely to contribute to the first supply deficit on the global cocoa market for three years in 2012-13, which should help cocoa prices recover in the coming weeks and months."

Coffee recovers

Also in New York, raw sugar for March eased 1.3% to 18.85 cents a pound, depressed by talk of producers lowering their aim for selling prices, while end users hold off.

But arabica coffee recovered early losses to close up 0.6% at 147.25 cents a pound, helped by a return to growth in world exports in November.

Shipments reached 5.6m bags, up from 5.48m bags in October and 5.39m bags in November 2011, the International Coffee Organization said.

Meanwhile, Brazil's Conselho Nacional do Café producers' group urged farmers to hold-off sales, questioning ideas of an overhang of stocks caused by producers holding off sales.

"Although market source claim that producers were holding their sales in higher-than-normal levels that's not what we see when we look at stocks in cooperatives," the council said.

A rise of 20-25% in stocks held by Cooxupé, the co-operative giant, "do not show a halt in sales, but a typical volume for a year with a larger harvest".

Brazil in 2012 saw an "on" year in its cycle of higher and lower producing seasons.