U.S. grain and soy review: Crop threats propel corn futures

U.S. corn futures rallied Tuesday, with traders rebuilding risk premium in the market on concerns hot, dry weather will reduce output.

Grain users are nervous about potential weather threats as farmers need favorable weather to grow a large crop to replenish low supplies.

The advances were driven by a three percentage point drop in the government's weekly good-to-excellent rating for the nation's corn crop. The U.S. Department of Agriculture, in a report issued Monday, said 66% of the crop was in good-to-excellent condition, down from 72% a year earlier.

The decline from the previous week reflected damage from extreme heat, surprising analysts who predicted the government would lower the rating by two percentage points at most.

Traders expect USDA will make further cuts to crop condition ratings next Monday due to heat this week.

However, corn ended well off initial highs Tuesday, as traders reduced some risk exposure after midday weather models pointed to cooler temperatures and better rain chances for the Midwest in longer range forecasts.

Midday forecasts pointed toward wetter conditions for the northern Plains and Midwest in 10-15 day outlooks, analysts said.

Traders are nervous of the volatile effect that weather forecasts can have on markets, and once some rain is added to the forecast, profit-taking quickly emerged, said Sterling Smith, analyst with Minnesota-based brokerage Country Hedging.

Nevertheless, futures ended with solid gains, drawing further support from weakness in the U.S. dollar, a feature that makes U.S. exports less expensive to foreign buyers.

U.S. wheat futures closed higher on spillover support from rising corn prices. The markets are linked as both grains are used for livestock feed. Weakness in the U.S. dollar added support, with hard red winter wheat, traded at KCBT, gaining the most on expectations for increased foreign demand, analysts said.

U.S. soybean futures end lower, backpedaling from earlier gains on less-threatening weather and speculative profit-taking. The U.S. soy crop is still a few weeks away from its critical yield development phase, and with midday forecasts adding some rain in longer-range outlooks, traders were nervous of sustaining long positions at historically high prices.

CBOT December corn end up 1.5% at $6.87 1/4 a bushel. CBOT Sept wheat end up 0.6% at $6.93 1/2, KCBT September wheat rose 2.2% to $7.78 and MGEX September wheat end up 1.3% to $8.33. CBOT November soybeans end down 0.3% at $13.82.

Other Markets

CBOT December soymeal finished up 0.1% at $365.00/short ton; December soyoil ended down 0.4% at 57.57 cents/pound.

U.S. rough rice futures decline as traders continue to book profits following sharp gains of the past two weeks. CBOT September rice dropped 26 1/2 cents, or 1.6%, to $16.55 1/2 per hundredweight.

Ethanol for December delivery rose 2.2% to $2.554 per gallon. Oats for September delivery was up 0.1% at $3.53 1/2 a bushel.