GRAINS-U.S. corn hits 9-month high as Midwest turns hot

* Corn has largest three-day gain since 2010
* Midwest crop fears persist despite some rain forecast
* Soy weak, wheat higher ahead of USDA report on Friday

(Updates U.S. market activity to close, adds new quotes)
By Michael Hirtzer
CHICAGO, June 27 (Reuters) - U.S. corn soared to a
nine-month high on Wednesday to post the biggest three-day gain
since 2010 as severe drought and triple-digit temperatures
threaten the crop as it enters pollination, its most vulnerable
phase.
December corn, the first contract to reflect the
new-crop harvest and the most active futures month at the
Chicago Board of Trade, rose 9 cents, or 1.3 percent, to finish
at $6.33 per bushel.
The contract has surged 14 percent this week as the sizzling
temperatures and a lack of rain will likely take a heavy toll on
the crop. Analysts polled on Wednesday by Reuters estimate the
U.S. corn yield will be 5.4 percent lower than the U.S.
Agriculture Department forecast.
"We are losing production on a daily basis," Jefferies Bache
grains analyst Shawn McCambridge said. "We have 100-degree
(Fahrenheit) temperatures (38 degrees Celsius) and very little
rainfall, and it looks like the extended forecast is more of the
same."
A number of industries depend on corn and a weather-damaged
crop could drive up prices for meat, food ingredients, livestock
feed, and biofuels.
Much of the southern U.S. Corn Belt is suffering moderate to
severe drought, with portions of Illinois, Indiana and Kentucky
in a state of extreme drought. Only scattered showers are
possible later this week, and those were forecast mostly in the
northern part of the region.
Some midday weather models predicted a slightly better
chance of rain in the coming days, spurring a modest sell-off
that saw corn pare gains and soybeans turn lower.
New-crop November soy ended 1-1/4 cents lower at
$14.12 per bushel after notching a new contract high at
$14.39-3/4.
But most weather forecasts continued to show dry conditions
and above-normal temperatures, said Anthony Chipriano,
meteorologist for MDA EarthSat Weather.
Don Roose, analyst at U.S. Commodities in West Des Moines,
Iowa, said, "We went from concerning weather to threatening
weather to yield-loss weather. If we stay in this same pattern
over the next two weeks, yields will probably go down."
July wheat added 3 cents to finish at $7.32, the
highest in nine months.
Grains bucked pressure from a firmer dollar, which rose
against the euro ahead of a European Union summit on Thursday
and Friday that is not expected to deliver any new measures to
ease the region's debt crisis.

USDA, which earlier this week said the corn and soybean
crops were in the worst condition since the historic drought
year of 1988, will update its stocks and production forecasts in
a report due on Friday.
The U.S. government in March said farmers had planted the
largest corn area since the 1930s and were expected to harvest a
record crop this autumn, but a large harvest is unlikely now.
"We'll still take losses. We have not discovered a crop that
can grow on air," McCambridge said. "But the advances in farming
techniques and seed hybrids will temper the downside potential
for yields, not like in '88 when we saw yields drop off a
cliff."
The higher corn prices have squeezed margins at U.S. ethanol
plants, with Valero Energy Corp announcing that it was
idling a biofuel refinery in Indiana, the second plant the
company has shut down until margins improve.
The CME Group, which owns the CBOT, late Tuesday
raised trading margins for its major agriculture contracts,
effective at the close of business on Wednesday. Exchanges
typically raise margins to mitigate risks as price volatility in
the market increases.

Prices at 3:49 p.m. CDT (2049 GMT)
LAST NET PCT YTD
CHG CHG CHG
CBOT corn 649.50 3.50 0.5% 0.5%
CBOT soy 1471.00 0.50 0.0% 22.7%
CBOT meal 428.00 0.80 0.2% 38.3%
CBOT soyoil 51.36 0.48 0.9% -1.4%
CBOT wheat 732.00 3.00 0.4% 12.1%
CBOT rice 1474.00 -3.00 -0.2% 0.9%
EU wheat 229.00 3.00 1.3% 13.1%

US crude 80.53 1.17 1.5% -18.5%
Dow Jones 12,627 92 0.7% 3.4%
Gold 1574.00 2.22 0.1% 0.7%
Euro/dollar 1.2469 -0.0021 -0.2% -3.7%
Dollar Index 82.5670 0.1950 0.2% 3.0%
Baltic Freight 988 7 0.7% -43.2%

(Editing by Dale Hudson, Marguerita Choy and Bob Burgdorfer)