(Updates U.S. market activity to close)
By Michael Hirtzer
CHICAGO, Sept 8 (Reuters) - U.S. corn futures climbed more than 1 percent to a two-week high on Thursday as investors exited short positions ahead of the U.S. Department of Agriculture's monthly crop report due on Monday, when the government is expected to trim corn yields.
Soybean futures reversed from small losses and turned higher late in the session at the Chicago Board of Trade, while U.S. wheat futures gained in light-volume trading.
USDA in its September supply and demand outlook is likely to reduce the average corn yield to 173.4 bushels per acre, down from 175.1 bpa on Aug. 12 but still a record high, according to a Reuters analyst poll.
Analysts predicted USDA would boost U.S. soybean yields to a record of 49.2 bpa, up from 48.9 bpa in August.
U.S. Energy Information Administration data released at mid-morning on Wednesday showing sharply lower production of corn-based ethanol and decreased stocks of the biofuel was seen as bullish for ethanol prices but slightly bearish for corn.
CBOT December corn settled 5-1/4 cents higher at $3.38-1/2 per bushel, highest since Aug. 24.
"There's a little short-covering in the corn market but the ethanol data capped any price gains. It was unexpected to see that drop (in ethanol output)," said Futures International analyst Terry Reilly.
EIA in a weekly report said U.S. ethanol output fell 25,000 barrels per day to 998,000 bpd, lowest since late-July.
CBOT November soybeans were up 1-1/4 cents to $9.76-3/4 per bushel, capping their fifth straight session of gains. CBOT December wheat finished 3-1/4 cents higher at $4.06, lifted by short-covering and improved export prospects for U.S. export shipments.
Trading volumes in corn, soybeans and wheat were light ahead of Monday's USDA data. A steep drop in corn open interest during Wednesday's session of higher prices suggested traders were exiting short positions rather than making new long bets, CME Group data showed.
Weekly USDA export data, due on Friday, was delayed one day due to Monday's U.S. Labor Day holiday.
Societe Generale analyst Rajesh Singla in a note to clients said a hike in USDA's U.S. soybean yields was largely factored in by traders.
"We believe that most of the negative news about record crop in the U.S. is already in the prices," Singla said. "We expect downward revision in the USDA's estimates for U.S. corn yields in coming months; however, we believe that there is still scope for an upward revision in soybean yields." (Additional reporting by Gus Trompiz in Paris and Naveen Thukral in Singapore; Editing by James Dalgleish and Chizu Nomiyama)