GRAINS-US corn climbs, extends drought-fed rally to 55 pct

Fri Jul 20, 2012 6:18pm IST

(Adds comment, European market, updates prices)
    * Corn, wheat, soy hover close to contract tops
    * Prices set for fifth straight week of gains
    * In 5 weeks, soybeans up almost 26 pct, wheat up about 50 pct
    * U.N. FAO worried about rally, sees no food crisis for now

    By Colin Packham and Svetlana Kovalyova
    SYDNEY/MILAN, July 20 (Reuters) - U.S. new-crop corn rose on Friday, taking
its drought-driven rally to more than 55 percent in five weeks, as crops wilted
under searing heat in the Midwest, prompting the United Nations agriculture
agency to talk of a serious situation although not yet a food crisis.
    The harsh weather also supported soybean prices, which were up almost 26
percent over five weeks, with the oilseed approaching the critical yield setting
phase when moisture is needed. 
    Wheat fell, but the September contract looked set to gain almost 50 percent
over its five-week rising streak. Prices for all three remained close to the
contract highs scaled in the previous session.
    The rapid price surge is worrying and prices are likely to rise even further
in the coming weeks, driven by U.S. corn, Abdolreza Abbassian, senior economist
and grain expert at the United Nations' Food and Agriculture Organisation (FAO),
told Reuters. 
    "It is a serious situation which has to be monitored closely but it is too
early to refer to it as a food crisis situation," he said. "We do not see any
production or supply problems with rice. That is very important for food
security of millions of people around the world." 
    Andrew Woodhouse, a Sydney-based analyst at Advance Trading Australasia,
said: "It's burning each day." 
    "Funds were in buying all three grains last night, and I think that will
continue on, though the book will be squared before the weekend."
    Chicago Board Of Trade December corn rose 1.03 percent to $7.86-1/2 a
bushel by 1207 GMT, holding near a contract high of $7.99 hit on Thursday.
Prices were on track for a 6 percent gain this week, its fifth straight week of
rises.
    September corn hit a record above $8 a bushel in the previous session.
    November soybeans rose 1.36 percent to 16.74-3/4 a bushel, after
hitting a contract high of $16.82-3/4 a bushel, and are heading for a gain of
more than 6 percent for the week. Front-month soybeans hit a record top of
$17.49 a bushel in the previous session.
    "There is no end in sight to the price buoyancy, for the situation in the
drought-plagued growing areas in the U.S. Midwest is becoming more and more
precarious," Commerzbank said in a note on Friday.
    CBOT September wheat fell 0.59 percent to $9.29-3/4 a bushel, just shy
of a record high of $9.38 a bushel hit in the last session. Prices are up about
10 percent for the week.
    In Europe, wheat prices edged lower on Friday, taking a breather after a 3
percent gain so far this week and 30 percent in the last month, and pressured by
drier weather in France lifting pressure on quality and allowing a restart in
harvests.
    
    DROUGHT COULD STAY TO END-OCTOBER    
    The U.S. Midwest is enduring its worst drought since 1956, which shows
little signs of abating.
    A weather report from the Drought Monitor showed the drought was expanding.
Half of the Midwest was in severe to exceptional drought, up from about a third
of the region a week earlier. 
 
    
    Hotter-than-normal temperatures are expected through October over most of
the contiguous 48 U.S. states, the National Oceanic and Atmospheric
Administration said, and did not rule out drought continuing past October. 
    It noted there was a chance of an El Nino pattern that could mean more
excessive heat and dry conditions by the end of 2012. 
    With temperatures soaring, prices have followed suit, and high prices for
corn and soybeans in the world's largest grain-exporting nation are beginning to
dent sales.
    Concerns were growing that high prices could trigger a food crisis like that
of 2008, when food shortages triggered riots in some countries.
    U.S. government data showed sales of soybeans to buyers overseas fell last
week to the lowest level in six months. For corn, the weekly sales were
one-fifth of a year ago, with Taiwan choosing to cancel a large purchase.
 
    
 * Prices as of 1203 GMT
                                                                     
  Product             Last    Change   Pct Move End 2011 Ytd Pct 
 
  Paris wheat         266.00    -1.50    -0.56   195.25    36.24
  London wheat        193.00    -1.00    -0.52   153.65    25.61
  Paris maize         250.75    -2.00    -0.79   197.25    27.12
  Paris rape          523.75     1.25    +0.24   421.50    24.26
  CBOT wheat          928.00    -7.00    -0.75   671.25    38.25
  CBOT corn           809.00     1.25    +0.15   654.75    23.56
  CBOT soybeans      1761.50    27.75    +1.60  1207.75    45.85
  Crude oil            91.36    -1.30    -1.40    98.83    -7.56
  Euro/dlr              1.22    -0.01    -0.67     1.30    -5.85
 * 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.
 
 
 (Additional reporting by by Sybille de La Hamaide and Marion Douet; Editing by
Anthony Barker)
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