GRAINS-Corn soars 5 pct, soy closing in on 2008 high

* New contract highs for new-crop corn, soybeans
* Little rain in forecast to ease crop damage
* Market shrugs off stronger dollar

(Updates with September corn hitting daily limit, settled
prices)
By Rod Nickel and Mark Weinraub
WINNIPEG, Manitoba/CHICAGO, July 5 (Reuters) - U.S. corn
surged 5 percent o n T hursday to its highest price in over a year
and soybeans jumped to within sight of their record high as new
forecasts offered no sign of rain relief for withering crops.
With fields now at the mercy of what may be the worst
Midwest drought in nearly a quarter century, grain traders
ignored the potentially bearish influence of a rising U.S.
dollar and focused on growing signs that one of the biggest corn
crops ever planted by U.S. farmers is now shrinking by the day.
Corn prices have surged by nearly 30 percent over the past
two weeks, dragging wheat and soybean prices up with them and
threatening to kick off another bout of food-inflation fears.
Only a few times before have prices risen so far, so fast - once
was in 1988, the last time the U.S. heartland faced such a dire
drought.
New forecasts showed that a spell of blistering triple-digit
heat should ease by the weekend but showed no signs of rain in
the near term for key states like Iowa and Illinois. Weather
models released at midday turned hotter and drier for next week,
igniting a further buying spree.
With more acres of corn now entering the key phase of
pollination, the time when yields are set, every hot, dry day
reduces output.
"The general theme is going to be that the hottest weather
is in the very near term but the rains still will be slow to
pick up here over the next couple of weeks," said Joel Widenor,
a meteorologist with Commodity Weather Group.
Chicago Board of Trade December corn surged 34 U.S.
cents, or 5 percent, to $7.08-1/2 a bushel, as U.S. grain
markets resumed trading after being closed Wednesday for the
U.S. Independence Day holiday.
The new-crop contract earlier notched a fresh contract high
of $7.13.
September corn briefly hit its daily trading limit of
a 40-cent gain, while front-month corn hit its highest
level since last June on a continuous chart.
In Indiana, the fifth-largest corn-growing state, much of
the damage from the worst drought since 1988 is irreversible,
said Purdue University corn specialist Bob Nielsen.
"A break in the drought and heat for the remainder of the
season would certainly minimize further deterioration of the
corn crop but would not result in recovery to anywhere close to
normal yields," he said.

SOYBEANS CLOSE IN ON RECORD
Soybean prices joined the rally over the past week, blasting
to their highest since a 2008 record as traders fear the drought
may extend into the pivotal pod-setting period next month.
Global supplies have already been strained by a shortfall in
Brazil and Argentina output due to a La Nina-driven drought.
The most active Chicago November soybean contract
spiked up 51-3/4 cents, or 3.5 percent, to $15.26-1/2 per
bushel, touching a contract high of $15.29 a bushel. The spot
July month reached $16.44-1/2, within 18-1/2 cents of its
July 2008 record $16.63.
Robust export demand for U.S. soybeans, due to drought
damage earlier this year to South America's crops, is driving
the oilseed higher with thoughts that yield reductions could
trim U.S. supplies, said Karl Setzer, analyst at MaxYield
Co-operative in Iowa.
"We can't afford to lose one bushel of production."
An unidentified importer bought nearly 1.2 million tonnes of
U.S. soybeans in a single deal last week.

RAIN DANCE
Analysts have already cut their corn yield forecasts by more
than 6 percent since the start of the season, with further
downside expected as the scale of the damage becomes apparent.
Commodity Weather Group on Thursday said it estimated the U.S.
2012 corn yield at 152.2 bushels per acre.
"We will see (higher prices) until the forecasts change,"
said Setzer. "Thing is, how much damage has been done between
now and then?"
As the U.S. drought worsens and prices climb, corn buyers in
Asia, who account for just less than half of the world's
imports, have been caught short.
Hot and dry weather in Ukraine has reduced that country's
corn yield, prompting its state weather forecasting center to
lower its harvest outlook.
The trade will be closely watching for possible reductions
to U.S. corn and soybean yield estimates in the U.S. Department
of Agriculture's (USDA) monthly supply/demand report next
Wednesday. Historically, the USDA waits until August to adjust
yields, Setzer said.
Chicago September wheat jumped 38-3/4 cents, or 4.9
percent, to $8.38 a bushel, gaining spillover support from corn.

Prices at 2:23 p.m. CDT (1923 GMT)
LAST NET PCT YTD
CHG CHG CHG
CBOT corn 708.50 34.00 5.0% 9.6%
CBOT soy 1583.00 53.50 3.5% 32.1%
CBOT meal 474.30 20.20 4.5% 53.3%
CBOT soyoil 54.15 1.20 2.3% 4.0%
CBOT wheat 838.00 38.75 4.9% 28.4%
CBOT rice 1486.00 14.50 1.0% 1.7%
EU wheat 243.75 6.25 2.6% 20.4%

US crude 86.95 -0.71 -0.8% -12.0%
Dow Jones 12,919 -26 -0.2% 5.7%
Gold 1604.24 -10.89 -0.7% 2.6%
Euro/dollar 1.2385 -0.014 -1.1% -4.3%
Dollar Index 82.8360 1.0540 1.3% 3.3%
Baltic Freight 1138 35 3.2% -34.5%

(Reporting by Rod Nickel in Winnipeg, Manitoba and Mark
Weinraub in Chicago, Editing by Maureen Bavdek, Bob Burgdorfer
and Jim Marshall)