Grains resume rally on U.S. drought fears; soy hits record high

Investing.com - U.S. grain futures rallied during European morning hours on Monday, with front-month soy prices rallying to a record high on the back of ongoing concerns over scorching heat and dry weather conditions in the U.S. Midwest-region.

Corn futures surged more than 3%, while wheat prices traded just below the previous session’s 14-month high.

Grain traders have been focusing mostly on market fundamentals, such as weather, in recent weeks. Agricultural traders pay close attention to the weather because farmers need favorable conditions to grow large crops.

Escalating concerns over scorching heat and dry weather conditions in the U.S. Midwest and Great Plains region have been fuelling a recent rally in grain prices.

Front-month corn has gained nearly 26% since June 1, July-wheat jumped approximately 20%, while front-month soy rose 18% in the period.

While some parts of the Midwest and Great Plains region received some relief rains over the weekend, updated weather forecasts showed that dry weather was expected to keep stress on U.S. Midwest corn and soybean crops for at least the next few days.

On the Chicago Mercantile Exchange, corn futures for July delivery traded at USD7.6300 a bushel, climbing 1.3%. Front-month prices rose by as much as 1.45% earlier to hit USD7.6325 a bushel, the highest since September 7, 2011.

The front-month corn contract surged 10.95% last week. Spot corn jumped more than 23% in the past three weeks.

The September corn contract traded at USD7.2138 a bushel, surging 3.7%.
 
Corn prices have been well-supported in recent sessions amid concerns dry soil in the U.S. corn-belt could strain the development of crops in the region, just as it enters its key pollination phase in the next few weeks.

U.S. corn crop ratings declined to the lowest levels for this time of year since 1988 last week, according to weekly crop progress data from the U.S. Department of Agriculture.

The next few weeks will be important for the grain, as the crop could face bigger losses if more rain doesn't come during its pollination phase.

The U.S. produced 38% of the world's corn last year, making it the both world's largest corn producing nation and the largest exporter of the grain.

Elsewhere, soybeans futures for July delivery traded at USD16.5025 a bushel, gaining 1.4%. Front-month prices hit a fresh all-time high of USD16.5025 a bushel earlier in the day, eclipsing the previous high of USD16.4200 hit in July 2008.

The front-month soy contract climbed 7.95% last week. Spot soybean prices have gained approximately 15% in the past three weeks.

The August soy contract traded at USD16.0238 a bushel, adding 2.2%.

Soy prices rallied, as the same hot, dry weather that boosted corn was seen benefitting soy futures as well. Soybeans are grown in many of the same regions across the U.S. as corn, but the key growing phase for soybeans does not start until later in the summer.

The USDA said that 45% of the soybean crop was rated ‘good’ to ‘excellent’ as of last week, down from 53% the previous week. Nearly 66% of the crop was ‘good’ to ‘excellent’ in the same week a year earlier.

Global supplies of the oilseed are already on the decline, as severe drought conditions earlier in the year in major South American growers Brazil and Argentina damaged crops in the region.

Meanwhile, wheat for July delivery traded at USD8.0725 a bushel, climbing 1%. The front-month contract hit a session high of USD8.0750 a bushel earlier in the day. Prices hit a 14-month high of USD814.25 on July 6.

The front-month wheat contract jumped 8.25% last week. Spot wheat surged nearly 24% in the past three weeks.

The September wheat contract traded at USD8.2625 a bushel, rallying 2.45%.

Wheat prices have rallied sharply in recent sessions, tracking strong gains in corn and amid speculation the USDA will cut its forecast of 2012-13 world wheat production in its next monthly report in July, following downgraded outlooks for crops in several key exporting countries.

Concerns over a disruption to supplies from the Black Sea-region lent further support, as traders continued to monitor weather conditions across the region amid concerns over crop conditions in Russia and Ukraine.

Russia is a major wheat exporter and competes with the U.S. for business on the global market. A downbeat Russian crop outlook could boost demand for U.S. supplies, which is the world’s third largest wheat producer and biggest exporter.

Corn is the biggest U.S. crop, valued at USD66.7 billion in 2010, followed by soybeans at USD38.9 billion, government figures show. Wheat was fourth at USD13 billion, behind hay.

Market participants were awaiting the release of the USDA’s weekly crop progress report due out after Monday’s closing bell on the CBOT to gauge how the recent heat wave has impacted yields and damaged crops.