July 3, 2012 / 11:20 AM / 8 years ago

GRAINS-Corn rally rages on as drought withers US crop

* December U.S. corn hits contract high
    * Spot-month soy trades to 4-year peak
    * Reuters poll shows expected drop in corn yield
    * Long-range forecast brings cooler weather

 (Recasts, adds new details)
    By Rod Nickel and Sam Nelson
    WINNIPEG, Manitoba/CHICAGO, July 3 (Reuters) - Relentless
heat in the key U.S. corn- and soybean-growing areas drove
benchmark Chicago corn futures higher on Tuesday, marking the
golden grain's biggest eight-day advance in 3-1/2 years as
drought brought worries about world grain supplies. 
    Soybean prices jumped to their highest levels since 2008,
less than a dollar per bushel off that year's top, while U.S.
wheat hit its highest price in over a year, tracking corn's
    The hot, dry weather prompted analysts to reduce corn yield
estimates, pointing to a smaller crop in the world's No. 1
grower than had been expected. In a Reuters poll Tuesday - the
day after the U.S. Department of Agriculture (USDA) reported on
crop conditions - analysts on average pegged the U.S. corn yield
at 153.4 bushels per acre, down from 157.3 bushels a week ago.
    The USDA on Monday slashed its condition rating for U.S.
corn to 48 percent good-to-excellent, down 8 percentage points
from a week earlier. It pegged the soybean crop at 45 percent
good-to-excellent, compared with 53 percent a week ago.
    The long-range forecast offered some mild relief as cooler
weather is expected next week in the U.S. grain belt. 
    "There's something for the bulls and bears today, with the
crop continuing to sink with the hot, dry conditions," said Don
Roose, president and analyst at U.S. Commodities in West Des
Moines, Iowa. "The bears have something with a little bit of a
possible change cooler in those way distant maps."
    Chicago Board of Trade December corn gained 18-3/4
U.S. cents, or 2.9 percent, to $6.74-1/2 a bushel, just slightly
below its fresh contract high of $6.76.
    The benchmark December contract has gained 22.5 percent over
the past eight trading sessions, the biggest corn advance in
3-1/2 years for a like period compared with spot-contract prices
on a continuous chart.
    December corn has gained ground in seven of those eight
sessions, picking up momentum after the rally looked to lose
steam last Thursday.
    The most active November soybean contract rose to a
contract high of $14.78 a bushel, while the spot month 
reached the highest price since July 2008. 
    Nearby July soybeans surged 40 cents, or 2.6 percent, to
$15.72-1/4 per bushel.
    Moderate temperatures forecast for next week, accompanied by
some rainfall in the south, will arrive too late to save some of
the already-damaged corn crop, an agricultural meteorologist
said on Tuesday. 
    The chance for rain and cooler temperatures follows heat and
dryness this week that is harming corn and soybean production
prospects, said Don Keeney, meteorologist for MDA EarthSat
    "The six- to 10-day is wetter for the southern Midwest and
Delta, not excessively wet, on the order of 0.50 inch to one
inch of rain is possible," he said.
    Midday weather updates on Tuesday showed little change.
    Rain amounts next week are expected to fall well short of
rescuing most crops. Much of the damage is already done to corn,
making a short position through Wednesday's Independence Day
holiday in the United States a risky gambit for some.
    "Before the market has a solid change, you're going to see
real evidence of (better weather) or a soaking rain," Roose
    The latest corn rating is 29 percentage points below the
USDA's initial forecast early in the crop season and the soybean
rating is 11 percentage points below the USDA's initial
    Unlike corn, which is baking during its key pollination
stage, soybeans do not reach their critical stage of pod-filling
until August.
    Still, the soy crop's potential for bouncing back is limited
by the fact that only small amounts of rain are expected next
week, said analyst Anne Frick of Jefferies Bache.
    "Beans are very drought-resistant and they can bounce back,
but I don't think anybody really expects them to bounce back to
the USDA's trend yield level," she said.
    September wheat gained 26-3/4 cents, or 3.5 percent,
to $7.99-1/4 a bushel, gaining spillover support from corn. 
    On a continuation chart, front-month wheat climbed as
high as $7.82 per bushel, its highest since June last year.
    New-crop Minneapolis spring wheat futures <0#MWE:> led the
way higher for the wheat complex, with the December contract
climbing 3.6 percent.
    The USDA on Monday estimated that 71 percent of the U.S.
spring wheat crop was in good or excellent condition, a drop of
six percentage points from the previous week. 
    In Western Europe, the outlook for wheat crops has improved
after June rains, but dry, sunny weather is now needed to avert
harvest delays, yield losses and quality problems, crop analysts
 Prices at 12:29 p.m. CDT (1729 GMT)     
                              LAST      NET    PCT     YTD
                                        CHG    CHG     CHG
 CBOT corn                  718.75    26.25   3.8%   11.2%
 CBOT soy                  1572.25    40.00   2.6%   31.2%
 CBOT meal                  454.10    11.60   2.6%   46.8%
 CBOT soyoil                 52.95     0.77   1.5%    1.7%
 CBOT wheat                 782.25    27.75   3.7%   19.8%
 CBOT rice                 1471.50    32.50   2.3%    0.8%
 EU wheat                   236.00     4.00   1.7%   16.5%
 US crude                    87.48     3.73   4.5%  -11.5%
 Dow Jones                  12,944       72   0.6%    5.9%
 Gold                      1620.36    23.68   1.5%    3.6%
 Euro/dollar                1.2606   0.0025   0.2%   -2.6%
 Dollar Index              81.8020  -0.0680  -0.1%    2.0%
 Baltic Freight               1063       50   4.9%  -38.8%
 (Reporting by Rod Nickel in Winnipeg, Manitoba and Sam Nelson
in Chicago; additional reporting by Naveen Thukral in Singapore
and Svetlana Kovalyova in Milan; editing by Jeffrey Benkoe, Jim
Marshall and David Gregorio)
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