U.S. corn futures rallied nearly four per cent on Thursday and soybeans rose two per cent to a three-week high as forecasts for hot, dry weather in parts of the Midwest fueled concerns about lower crop yields.
Strong export sales of both commodities and a government report that showed farmers planted less corn and soybeans this season than expected ignited the rally and triggered short-covering by commodity funds, which have built up their bearish bets in recent weeks.
Corn's technically oversold condition, after prices slumped to a near-three-year low earlier this week, fueled technical buying, while gains in soybeans accelerated as some contracts breached key moving averages.
"Weather is the big issue. The market is a little nervous about just what we're going to see over the next couple of weeks, particularly in Iowa," said Sterling Smith, futures specialist at Citigroup.
"We had pretty aggressively sold the corn down and built up a pretty good fund short position, and some of that is coming off now."
Warmer, drier weather in the U.S. Midwest through the end of August will draw down soil moisture levels, posing a threat to reduce crop yields, said Andy Karst, meteorologist at World Weather Inc.
"There will be some stress on crops in western and southern Iowa, northeast Missouri and west-central Illinois," he said.
However, the warmer temperatures will also boost corn and soybean growth and reduce the threat of harm from an early frost, he said.
Chicago Board of Trade December corn added 17 cents, or 3.7 per cent, to a two-week high of $4.72-1/4 a bushel. It was the contract's steepest percentage gain in five weeks.
CBOT November soybeans gained 26-1/2 cents, or 2.1 per cent, to $12.65-1/2 a bushel, the highest level for the contract since July 24 (all figures US$). The contract, which has climbed about seven per cent this week, rallied beyond its 50- and 100-day moving averages but failed to breach its 200-day moving average.
Fewer acres planted
Both corn and soybeans drew support from a U.S. Department of Agriculture report on Thursday that showed fewer-than-expected acres were planted this spring due to wet weather.
The data suggested acreage figures in USDA's latest crop production report may be overstated.
"Those numbers are so far below the USDA that everybody got excited ... That's what started your rally," said Roy Huckabay, analyst at The Linn Group.
Robust export sales further supported the market.
USDA pegged net U.S. soybean export sales last week at nearly 1.9 million tonnes, the highest weekly tally in 18 months. Corn export sales were well above expectations.
Monthly soybean processing data released by the National Oilseed Processors Association at midmorning garnered little market reaction as the August crush of 116.3 million bushels was largely in line with trade expectations.
Wheat futures advanced on spillover strength from higher corn and soybeans, with the CBOT September wheat contract up seven cents, or 1.1 per cent, at $6.37-1/2 a bushel.
Commodity funds bought a net 22,000 corn contracts, 10,000 soybean contracts and 4,000 wheat contracts on the day, trade sources said.
-- Karl Plume reports for Reuters from Chicago. Additional reporting for Reuters by Sam Nelson and Julie Ingwersen.