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Record U.S. soy harvest forecast could grow as weather improves

CHICAGO, Aug 18 (Reuters) - The U.S. Agriculture Department's forecast for a record soybean crop may get even bigger as rains and moderate temperatures across key growing areas shepherd the crop through early stages of its key development period.

The recent stretch of good weather in major production states such as Iowa and Illinois has led to improved ratings for the soybean crop, reinforcing the bearish tone the government's outlook put on the market earlier this month.

Improved ratings at this time, the yield-determining period when pods on soybean plants begin filling, typically signal further increases in the harvest outlook.

A bumper U.S. crop would add to the record global stockpile of soybeans that has built up amid massive harvests in Brazil and Argentina.

The government's August harvest forecast topped market expectations and sent prices into a tailspin. Most analysts had predicted that adverse weather early in the growing season hampered crop development and would cause the USDA to lower its production outlook.

But crop prospects have only improved since the USDA surveyed fields for its August report.

Good-to-excellent ratings for the U.S. soybean crop have risen by 2 percentage points to 59 percent since late July. That marks just the eleventh time since 1986 that soybean crop conditions have improved during that period.

In the previous 10 times, a ratings bump during the period was followed by an increase to the government's yield estimate in its September crop production report seven times. The yield increase in those seven years averaged 0.9 bushel per acre.

A similar boost to the 2017 production outlook would move the yield projection to 50.3 bushels per acre and raise the government's already-record harvest forecast by 79.8 million bushels.

In 2016, USDA boosted its soybean yield forecast by 1.7 bushels per acre in its September report. Good-to-excellent ratings rose 1 percentage point to 72 percent good-to-excellent from late July to mid-August that year.

The cloud hanging over prices is likely to persist even though it will take months to confirm if the USDA's harvest outlook is correct.

"We could be in a situation where it is going to drag right through September or October before we recognize any major turns there and stop focusing so much on supply and start thinking about where demand is at this point," said Dan Hueber, general manager of The Hueber Report, a grains marketing advisory service and brokerage firm.

The benchmark Chicago Board of Trade November soybean futures contract, which tracks the crop that will be harvested this fall, has fallen 5.5 percent since the USDA issued its soy production outlook on Aug. 10. The contract peaked at its highest in nearly three years early in July. (Reporting by Mark Weinraub; Editing by Dan Grebler)