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Drought fears kick grains higher

07/13/2012 @ 3:26pm

U.S. corn and soybean futures ended mostly higher on Friday, as traders continued to worry that a Midwest drought will cut yields for the two crops.

Forecasts call for temperatures to heat up over the weekend and early next week, with only scattered rains expected in that period. With little sign of drought relief in sight, traders continued to push futures prices higher to account for lower harvest expectations.

"In terms of erasing this incredible dry spell, I don't see any indications of it at all," said Mike Palmerino, a meteorologist at Telvent DTN.

"You have not broken the drought. The dryness in the Midwest continues to expand, it's not shrinking," and it is encroaching on Iowa and Minnesota, which didn't face much dryness just a few weeks ago, he said. Crop conditions in Minnesota have been markedly better than in the rest of the Corn Belt so far.

Temperatures could reach the upper 90s and low 100s in the next seven days in parched areas including Indiana, Illinois and southern and eastern Iowa, Mr. Palmerino said.

Chicago Board of Trade July corn futures, which were thinly traded and expired Friday, settled down 15 1/2 cents or 2.0% at $7.55 3/4 a bushel. Other corn contracts rose, with September corn up 9 1/4 cents or 1.3% at $7.40 1/2 a bushel.

Corn futures had traded to higher levels Friday morning, before profit-taking pushed futures down mostly into negative territory. Buying later in the day brought futures back up again, as market participants seemed more willing than usual to buy ahead of the weekend due to such strongly unfavorable crop conditions, traders said. Usually, some market participants exit bets ahead of the weekend to avoid the risk that weather forecasts could shift while markets are closed.

The soybean crop could still recover significantly if rains pick up in coming weeks, as the key growing period for soy is August. Corn, though, has largely completed its delicate pollination phase, when moisture has a large effect on eventual yields, so traders see the damage to the corn crop as mostly irreversible.

July soybeans expired and settled up 16 1/4 cents or 1.0% at $16.42 a bushel. August soybeans rose 22 1/4 cents or 1.4% to $15.94 3/4 a bushel.

Wheat futures also ended higher, pulled up by the gains in corn and by expectations for lower production in Russia and Australia due to dry weather in the two major exporters. Traders say most of the gains for wheat in recent weeks have been due to the rally in corn.

CBOT September wheat ended up 1 cent or 0.1% at $8.47 3/4 a bushel. Kansas City Board of Trade September wheat rose 4 cents to $8.51 a bushel. MGEX September wheat rose 7 1/2 cents to $9.49 1/2 a bushel.

Write to Owen Fletcher at owen.fletcher@dowjones.com
(END) Dow Jones Newswires
July 13, 2012 16:14 ET (20:14 GMT)
DJ US GRAIN AND SOY REVIEW: Corn, Soy Futures Rise on Drought->copyright

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