GRAINS-Prices dip from highs, but world watches U.S. drought

Wed Jul 18, 2012 4:56pm IST

* Corn, wheat drop after 4 week surge
    * Blistering U.S. drought continues to support
    * Importers face painful wheat bills

 (Changes dateline, byline, adds fall in prices in European
trade)
    By Michael Hogan and Colin Packham
    HAMBURG/SYDNEY, July 18 (Reuters) - U.S. grains and soybeans
slipped on Wednesday as investors booked profits from a
blistering rally, with some prices rising by almost 50 percent
so far this summer as the U.S. Midwest felt the force of its
worst drought in over 50 years.
    A marginal improvement in U.S. weather forecasts generated a
pullback in corn, wheat and soybean prices but the attention of
global grain markets is still focused squarely on boiling heat
which has devastated crops in the U.S. grain belt.
    "We have seen a very strong rally to reach these high price
levels and we are seeing a bit of a pullback on profit-taking
which is not surprising," said Rabobank analyst Erin
FitzPatrick. "But the drought in the U.S. is continuing to drive
prices."
    "We are not seeing much improvement to the crop conditions
in the U.S. and until we see better weather for the parched U.S.
crops I do not expect that prices will fall very much."
    Chicago Board of Trade spot September corn fell 1.3
percent to $7.69 a bushel, having touched a 13-month high of
7.96-1/2 a bushel on Tuesday, close to the record high of
$7.99-3/4 set last summer.
    Corn prices have surged around 45 percent this summer,
with analysts expecting the U.S. crop to deteriorate further as
the drought is expected to continue to ravage the U.S.
    In Missouri, Governor Jay Nixon announced on Tuesday that
all 114 counties in the state have been designated as natural
disaster areas due to the drought, making farmers eligible for
government loans or other aid. 
    Only weeks ago analysts had forecast the U.S. would this
year harvest a record size crop of corn, a key animal feed. Now
the smallest corn crop in five years is expected as U.S. crops
shrivel.
    "The drought in the U.S. is continuing to drive prices up on
the grain market," Germany's Commerzbank said in a report.
"Although isolated rain showers are forecast for next week,
meteorological services expect the heat-wave to continue into
August."
    The drought has devastated fields at a time when a bumper
corn harvest was needed to bolster three years of razor-thin
stocks in the United States which are eating into profit margins
for meat companies and ethanol producers.
    U.S. ranchers unable to meet soaring feed costs and whose
pastures have been laid waste by the drought have begun reducing
herds, which could translate into higher prices for meat next
year.
    Chicago November soybeans were down 0.6 percent at
$15.80-1/2 a bushel, still close to the contract high of $16.07
touched on Tuesday also on U.S. crop concerns.
    Chicago September wheat fell 1.2 percent to $8.86-3/4
a bushel.
    
    IMPORT BILLS RISE
    "The dramatic rise in grain prices in the past few weeks is
shaping up to be a serious financial blow for wheat importing
countries," one German trader said. "African and Middle Eastern
countries are now facing painful rises in import bills."
    The latest example was Jordan, which cancelled an
international purchase tender for 100,000 tonnes of wheat on
Tuesday because of high prices but issued a new tender on
Wednesday.  
    "Jordan made its last wheat purchase in a tender on June 27,
with the offers it received for wheat on Tuesday Jordan faced an
extra cost of $4.5 million to buy 100,000 tonnes of wheat in
just four weeks."
    "That is a lot of money for many countries to suddenly find
in their state budgets."      
    
    UNRELENTING HEAT
    Updated weather forecasts gave little hope for a quick end
to the U.S. drought, now the worst since 1956.
    Indeed, there were signs that the drought, which has been
centered in the Midwest, was expanding north and west, putting
more crops at risk including in states such as Nebraska where
large tracts of cropland are irrigated by groundwater and
rivers.
    The unrelenting hot, dry weather is expected to force
further declines in corn crop estimates in the U.S., the world's
top exporter of the grain.
    A Reuters poll of 13 analysts suggested that the drought was
continuing to shrink the U.S. corn crop, with yields likely to
fall 7 percent from the U.S. Department of Agriculture's
estimate a week ago to 137.2 bushels per acre. 
    
    Global wheat production may also suffer amid drought
conditions across eastern Europe and parts of central Asia. 
    Kazakhstan said it expects a below-average crop this year
due to drought in its northern grain belt. The country said hot
and dry weather would cut its grain crop to 14 million tonnes
this year, a decline of 48 percent on last year's post-Soviet
record and undershooting the average of 17 million tonnes over
the last nine years. 
    Russia may export just 10 million tonnes of wheat this year
as grain exports fall by half this year from last year's record
28 million tonnes due to low stocks and a drought in the
southern breadbasket regions, analyst SovEcon said on Tuesday.
 
 * Prices at 1049 GMT
 
  Product             Last    Change   Pct Move End 2011
 Ytd Pct 
 
  Paris wheat         261.75    -4.50    -1.69   195.25  
  34.06
 
  Paris maize         241.50    -3.50    -1.43   197.25  
  22.43
  Paris rape          517.00    -5.25    -1.01   421.50  
  22.66
  CBOT wheat          870.75   -14.25    -1.61   671.25  
  29.72
  CBOT corn          761.25   -10.00    -1.30   654.75   
 16.27
  CBOT soybeans      1602.50   -10.25    -0.64  1207.75  
  32.68
  Crude oil           88.88    -0.34    -0.38    98.83  
 -10.07
  Euro/dlr              1.2243
 * All grain and oilseed prices for second position.
 Paris futures prices in Euros per tonne, London wheat in
 pounds per tonne and CBOT in cents per bushel.
 
 
 (Reporting by Michael Hogan and Colin Packham; Editing by
Veronica Brown)

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