U.S. corn futures are trading sharply higher Monday, boosted by continued worries about the Midwest drought shrinking the size of the U.S. crop.

In electronic trading, Chicago Board of Trade futures for September delivery are up 28 1/2 cents or 3.8% at $7.69 a bushel. December corn is up 29 cents, or 3.9%, at $7.69 1/4 a bushel. Both September and December corn are trading at fresh contract-life high levels.

High temperatures are expected to reach the high 90s and low triple digits in parts of Iowa, Illinois, Indiana and Missouri early this week. Storms will move through the region mid-week, but chances of rain are still relatively low.

The National Weather Service forecasts above-average temperatures and below-average chances of rain across the Midwest this weekend and all next week.

Many analysts have already substantially cut their forecasts for the U.S. corn crop's output due to the worsening drought. With no relief in sight, traders are continuing to push futures prices higher to account for the risk that the crop's potential could still shrink further, and to reduce demand.

With low domestic corn inventories and falling expectations for this year's crop, Goldman Sachs analysts said in a research note Monday, "we forecast that high corn prices of $6.90 [a bushel] will be required over the next 12 months to achieve the necessary feed and export demand destruction."

"In particular, further U.S. production losses would require sustained ethanol production cuts, which we estimate takes place with a corn price above $8.00" a bushel, the research note said.

Corn futures are also rising as corn traders wait for the USDA's weekly crop-progress report to come out at 4 p.m. EDT Monday. Analysts expect the report's condition ratings for the U.S. corn crop to extend their sharp decline of recent weeks, which has left conditions the worst since 1988.

Downside risks for corn futures include the possibility of weather forecasts turning wetter and cooler. Signs of falling demand could also limit gains for corn. Analysts say demand has already eased from ethanol producers and foreign buyers due to the surge in prices in recent weeks.

-Write to Owen Fletcher at owen.fletcher@dowjones.com
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(END) Dow Jones Newswires
July 16, 2012 09:42 ET (13:42 GMT)
DJ U.S. CORN: Jumping on More Drought Worries, Dry Forecasts->copyright