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Grain futures hit highs on drought

07/18/2012 @ 6:18pm

U.S. corn and soybean futures both jumped Wednesday on continued worries that the drought in the Midwest could further reduce yields for the two crops.

Chicago Board of Trade corn futures for September delivery rose 15 1/2 cents or 2.0% to $7.95 a bushel, a new all-time closing high for the front month, though the all-time intraday high of $7.99 3/4 a bushel reached in June 2011 still stands.

August soybeans settled up 44 1/2 cents, or 2.7%, at $16.83 1/2 a bushel, and traded as high as $16.85 1/2 a bushel during the session, setting fresh front-month all-time closing and intraday highs.

Corn futures have soared in the last month as hot temperatures and a lack of rain have withered the nation's corn crop, leading analysts to cut their forecasts for the crop's yield. Much of the damage from drought became permanent over the last few weeks as the crop went through its delicate pollination phase, which determines the number of kernels each ear of corn produces.

Some traders say both corn and soybean futures have more room to rise, but that soybeans in particular could still see higher prices. The key growing period for soybeans is approaching in late July and August, when crops will set their pods and then fill them out with beans.

"There's still quite a bit of talk of 17 or 18 dollars if weather doesn't change by mid-August," said Rich Nelson, director of research at advisory firm Allendale Inc. in McHenry, Ill.

Both corn and soy prices benefited from expectations for relatively dry weather for the rest of this week and the next. Rainfall that was forecast to move through Iowa, Illinois and Indiana on Wednesday and Thursday drifted farther north than expected, raising the chances that parched areas in those states won't receive much rain, analysts said.

The National Weather Service forecasts above-average temperatures across the Midwest next week, combined with below-average chances of rain in Iowa, Illinois and Missouri.

Market participants will likely show fresh buying interest in corn if futures can set a new all-time high and move past the psychological barrier of $8.00 a bushel, analysts say.

Analysts said corn traders continued to focus mainly on weather forecasts Wednesday, but that futures may have benefited from U.S. Agriculture Secretary Tom Vilsack saying the crop situation isn't bad enough to warrant a reduction in government mandates for corn-based ethanol production. There has been recent speculation that a smaller corn crop might prompt the Environmental Protection Agency to lower the mandate in order to take pressure off of rising corn prices.

Wheat futures also rose Wednesday, boosted by higher corn prices. Wheat prices have also been underpinned in recent weeks by worries that dry weather could reduce production in major overseas growers, including Russia and Australia.

CBOT September wheat rose 18 1/4 cents or 2.1% to $9.03 1/4 a bushel.

--Bill Tomson contributed to this article.
Write to Owen Fletcher at owen.fletcher@dowjones.com
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(END) Dow Jones Newswires
July 18, 2012 16:58 ET (20:58 GMT)
DJ U.S. GRAIN AND SOY REVIEW: Corn, Soy Futures Hit Highs on Drought->copyright

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