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Corn limit-up on weather

06/25/2012 @ 4:17pm

Both nearby and deferred U.S. corn futures closed limit-up Monday, after surging on concerns that hot and dry weather could damage the U.S. crop and shrink its yield.

Chicago Board of Trade corn futures for July delivery closed up 40 cents, or 6.8%, at $6.31 a bushel, a one-month high for the contract. December corn closed up 40 cents, or 7.2%, at $5.94 a bushel, the contract's highest settlement since November.

September, March and May futures also ended the session limit-up.

Corn crops will be in their crucial pollination phase in the next few weeks, making it more likely that unfavorable weather could reduce crop yields. Dry weather in recent weeks in areas like southern Illinois and Indiana has already led analysts to cut their expectations for the harvest.

This week, "dry and very warm conditions will persist across the central and southern Midwest and much of the Delta. This will allow stress to build further on corn as pollination increases," private forecaster MDA EarthSat said Monday morning. "The six-10 day outlook offers little hope for any notable relief as well."

A midday update produced by the Global Forecast System weather model predicted a greater likelihood of rains in the Midwest late next week, but analysts said traders will need more confidence in a wetter forecast before corn futures can decline.

Forecasters may be hesitant to switch their predictions until a shift is very clear, said Archer Financial Services Inc. broker Dennis Smith. Then, "they're all going to switch at the same time, and the market's going to top out," he said.

The market will remain extremely sensitive to changing weather forecasts in the next few weeks.

"What this really shows is just how unreliable models are and certainly how volatile they can be with their forecast predictions more than a week ahead," said Doane Advisory Services analyst Bill Nelson.

Soybean futures also rose on worries about dry weather preventing normal crop development. CBOT July soybeans rose 40 1/4 cents, or 2.8%, to $14.82 3/4 a bushel.

Wheat futures followed corn sharply higher, as dry weather shrinking the U.S. corn crop would also likely boost demand for wheat to replace corn in animal feed. In recent days, wheat has also benefited from falling expectations for wheat production in important areas like the Black Sea region and Australia.

CBOT July wheat rose 51 cents, or 7.6%, to $7.24 1/4 a bushel. Kansas City Board of Trade July wheat rose 47 cents, or 6.9%, to $7.33 a bushel. MGEX July wheat rose 21 cents, or 2.4%, to $8.80 a bushel.

Write to Owen Fletcher at owen.fletcher@dowjones.com.

(END) Dow Jones Newswires

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