GRAINS-Markets climb as US Midwest drought-worries mount

Sat Jul 14, 2012 1:50am IST

* Drought-hit U.S. Midwest faces another heat wave
    * Corn nears all-time peak, retreats amid profit-taking
    * Threat to soy rising with little relief seen
    * Corn woes buoy outlook for feed wheat demand

 (Updates with closing prices, weekly performance)
    By Karl Plume
    CHICAGO, July 13 (Reuters) - U.S. corn and soybean futures
extended their rallies o n F riday, posting their biggest
four-week gains in at least 3-1/2 years as rising temperatures
and below-normal rainfall in the drought-parched Midwest
threatened to further erode yields and tighten razor-thin
supplies.
    Soybeans climbed 1.5 percent, outpacing a more modest 1
percent gain in corn, as the oilseed can ill afford deeper
production cuts with U.S. stocks already projected to shrink to
a nine-year low by the end of next summer.
    Wheat scaled to a 13-month high on spillover support from
corn and soy and on the prospect of attracting demand from
livestock producers amid near-record prices for corn, their
preferred feed grain.
    Grains rose for a fourth straight week in a drought-fueled
rally, reviving food inflation worries and rekindling memories
of the 2008 food crisis which stirred unrest in some
import-dependent nations.
    Front-month soybean futures on the Chicago Board of
Trade surged to a record-high on Monday and spot corn 
threatened to surpass its all-time price high on Friday before
drifting lower. Both contracts expired on Friday.
    "When you get up here at these levels you sometimes run out
of steam. The end-user isn't going to be in the market buying
any large quantities and you do have rain moving across Iowa and
into Illinois so we may have some profit-taking," said Mark
Schultz, chief analyst with Northstar Commodities in
Minneapolis, Minnesota.
    "But that rain we're hearing is spotty and there's not very
much of it yet. And there's heat in the forecast," he said.
    Actively traded new-crop December corn ended the week
6.8 percent higher. New-crop November soybeans were up
3.1 percent from a week ago and September wheat was up
5.1 percent.
    
    STRESSED CROPS
    Very warm temperatures accompanied by only light "teaser"
rains over the next week may slow deterioration of corn and
soybean crops, but there will not be enough rain to end the
drought, an agricultural meteorologist said Friday. 
    "There is not much change, about the same forecast, with
very warm weather and restrictive rains over the next week,"
said Drew Lerner, meteorologist for World Weather Inc. "Crop
conditions and yields will keep declining."
    Lerner said temperatures would remain in the mid-80s to
upper 90s degrees Fahrenheit (29-37 Celsius), with a few
readings in the triple digits, over the next week. Rains of 0.25
to 0.75 inch should cover about three-quarters of the Midwest.
    Drought stress has already dragged corn and soy crop
condition ratings to the lowest point for this time of year
since 1988, and traders are expecting further downgrades in the
U.S. Agriculture Department's weekly report on Monday afternoon.
    December corn rose 8 cents, or 1.1 percent, to $7.40-1/4 a
bushel after earlier setting a contract high of $7.49. Spot July
 expired 15-1/2 cents lower at $7.55-3/4 after peaking at
$7.94, just short of its all-time high of $7.99-3/4.
    The key new-crop contract has risen about 45 percent in a
blistering four-week rally.
    Commodity funds were net buyers of an estimated 12,000 corn
contracts on the day, along with a net 5,000 soybean contracts,
trade sources said. 
    The Midwest drought has done considerable damage to this
year's corn crop. The U.S. Department of Agriculture this week
slashed its corn yield estimate for the world's top grower and
exporter by an unprecedented 20 bushels, to 146 bushels per
acre.
    Drought in the Midwest has worsened. A weekly U.S. drought
monitor showed about a third of the nine-state region in severe
to exceptional drought in the week ended July 10, up from about
a quarter of the region a week ago.    
    
    SOY SURGE
    CBOT November soybeans rose 23-1/2 cents, or 1.5 percent, to
$15.52-1/2 a bushel, with the prolonged drought seen taking an
increasing toll on the soybean crop in coming days.
    Soybeans will begin flowering in late July to early August,
a critical development stage when stressful weather can severely
harm yields.
    Wheat prices also rose with animal feed usage likely to be
buoyed by the surge in corn prices.
    "Demand for wheat as a feedstuff is growing as corn becomes
more expensive," Commerzbank said in a market note.
    CBOT September wheat climbed 1 cent, or 0.1 percent, to
$8.47-3/4 a bushel after peaking at $8.65-3/4, the highest price
for the contract since June 2011.
    
 Prices at 2:45 p.m. CDT (1944 GMT)      
                              LAST      NET    PCT     YTD
                                        CHG    CHG     CHG
 CBOT corn                  755.75   -15.50  -2.0%   16.9%
 CBOT soy                  1642.00    16.25   1.0%   37.0%
 CBOT meal                  488.90    10.10   2.1%   58.0%
 CBOT soyoil                 53.57     0.42   0.8%    2.8%
 CBOT wheat                 842.00     9.25   1.1%   29.0%
 CBOT rice                 1486.00    14.00   1.0%    1.7%
 EU wheat                   259.00     4.75   1.9%   27.9%
 
 US crude                    87.25     1.17   1.4%  -11.7%
 Dow Jones                  12,784      209   1.7%    4.6%
 Gold                      1589.56    19.07   1.2%    1.6%
 Euro/dollar                1.2240   0.0044   0.4%   -5.4%
 Dollar Index              83.3380  -0.3180  -0.4%    3.9%
 Baltic Freight               1110      -11  -1.0%  -36.1%
    
    In U.S. cents, benchmark contracts, except EU wheat (euros)
and soymeal (dollars). CBOT wheat, corn and soybeans per bushel,
rice per hundredweight, soymeal per ton and soyoil per lb.

 (Reporting by Naveen Thukral in Singapore, Mark Weinraub in
Chicago and Nigel Hunt in London; Editing by Alison Birrane,
John Picinich, Jim Marshall and Bernadette Baum)
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