U.S. grain markets climb on Midwest drought worries

U.S. corn and soybean futures extended their rallies on Friday, 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 per cent, outpacing a more modest one per cent 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 (CBOT) 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.

"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 per cent higher. New-crop November soybeans were up 3.1 per cent from a week ago and September wheat was up 5.1 per cent.

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 F (29-37 C), 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 eight cents, or 1.1 per cent, 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 per cent 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 per cent, 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 one cent, or 0.1 per cent, to $8.47-3/4 a bushel after peaking at $8.65-3/4, the highest price for the contract since June 2011.

— Karl Plume reports for Reuters from Chicago. Additional reporting for Reuters by Naveen Thukral in Singapore, Mark Weinraub in Chicago and Nigel Hunt in London.

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