GRAINS-Wheat pauses after rally on US crop forecast as Trump-Xi summit looms

PARIS/BEIJING, May 13 (Reuters) - Chicago wheat edged lower on Wednesday after a day-earlier surge on an unexpectedly low U.S. crop forecast, with attention turning towards a high-stakes U.S.-China summit at which agricultural trade will be a focus.

Corn and soybeans ticked higher as traders digested Tuesday's U.S. Department of Agriculture outlook while monitoring for any deals for China to buy U.S. crops.

In closely watched forecasts for the upcoming 2026/27 season, the USDA projected the smallest U.S. wheat crop since 1972, with its estimate falling below trade expectations.

The unexpectedly low estimate heightened fears about drought damage in the U.S. Plains.

"Often conservative and cautious in its crop forecasts, the USDA shocked the entire market by making, as early as this month of May, an extreme cut to its forecast for the 2026 U.S. wheat crop," Argus Media analysts said.

In its outlook, the USDA also pegged global wheat stocks in 2026/27 below average analyst expectations, reflecting a drop in output in several major producing countries.

The most-active wheat contract on the Chicago Board of Trade (CBOT) Wv1 was down 0.6% at $6.74-3/4 a bushel by 0936 GMT, after earlier inching up to its highest in almost two years at $6.82-1/4.

The benchmark rose by its 45-cent daily limit on Tuesday, jumping 7.1%.

K.C. wheat KWv1, which represents the hard red winter crop most affected by drought, extended gains to a new two-year peak after also climbing by its 45-cent limit on Tuesday.

The contract was up 1.1% at $7.39 per bushel.

Both Chicago and K.C. wheat contracts will have expanded 70-cent trading limits on Wednesday.

Asian flour millers are rushing to secure wheat cargoes after an absence of more than two months, as the U.S. drought and forecasts for dry weather caused by El Nino raise fears of tighter global supplies, traders said.

The ongoing Iran war has also underpinned grain markets by threatening to weigh on farm production because of rising energy and fertiliser costs.

CBOT corn Cv1 added 0.2% to $4.81 a bushel, and soybeans Sv1 gained 0.2% to $12.29-1/4 a bushel.

Washington and Beijing may reach a farm deal that expands Beijing's purchases of grains and meat, but market watchers said major new soybean purchases beyond those agreed last October are unlikely.

Chinese demand could alter the outlook for U.S. soybeans after the USDA projected smaller U.S. stocks next season than expected on average by analysts.

"U.S. new-crop export potential will depend to no small degree on the outcome of the Trump-Xi summit," Rabobank analysts said.