U.S. grain and soybean futures rallied Tuesday, ending higher amid broad strength in commodities and worries about hot dry South American weather.

Soybeans led the way higher, with Chicago Board of Trade March futures ending up 25 1/4 cents, or 2.2%, to $11.83 1/2 a bushel. March soybean meal climbed $9, or 3%, to $310.50 per short ton, while March soybean oil climbed 0.48 cents to 50.77 cents per pound.

The markets were fueled by a weaker dollar and stronger equities, which were influenced in part by better-than-expected economic data from China, traders said. Given the steep drop in grains late last week on Thursday's U.S. Department of Agriculture report, traders took the opportunity to cover short positions, analysts said.

• More on China: What if it stops growing?
  

Adding to the support was growing worry about the toll that drought is taking on South American crops. A drier-than-expected weekend heightened the concerns, particularly for soybeans, traders said. Many crop forecasters have lowered their projections in recent days, a development that could lead to more export demand.

The biggest concern with the weather at this stage is the soybean crop, analysts said. Damage to the corn crop, which has an earlier growing season, is likely already done, they said.

Although world soybean supplies are currently considered adequate, U.S. producers could be hard-pressed to make up for losses in South America, as farmers are widely expected to favor more corn acres instead of soybeans based on current prices, analysts said.

"Maybe we're not going to quite get the acres here in the U.S. given the corn/bean ratio," said Don Roose, president of U.S. Commodities in Des Moines, Iowa.

Traders added that strong weekly export inspections reported Tuesday added to soybeans' support.

Gains in corn and wheat futures were modest versus soybeans.

CBOT March corn ended up 4 1/2 cents to $6.04 a bushel. Many analysts expect the market to settle into a sideways trading range in the coming weeks, as worries about the South America crop are offset by lackluster export demand and bigger-than-expected domestic supplies detailed by the USDA last week. Corn's next major shift could depend on U.S. farmer plantings and early spring weather, traders said.

Wheat prices gained on the outside support, with weak export demand and an increase in winter wheat acreage capping the rally. CBOT March wheat closed up 2 1/2 cents to $6.04 3/4 a bushel, while Kansas City Board of Trade wheat closed up 1/4 cent to $6.70 1/4. MGEX March wheat rallied 10 3/4 cents to $8.12.

Other markets

U.S. rice futures ended higher on outside market support and drought in South America. CBOT March rice ended up 36 1/2 cents, or 2.5%, to $14.80 1/2 a hundredweight.

Analysts said drought in Brazil is hurting the crop there, which is supportive to prices. Commodities rallied broadly on a weaker U.S. dollar and stronger equities. Rice's upside limited by weak export demand.

U.S. oats futures joined in a broad rally led by weaker dollar and drought in South America. CBOT March oats closed up 4 1/4 cents to $2.86 3/4 a bushel.

Ethanol futures were higher. CBOT February ethanol closed up 0.021c to $2.142 a gallon.

-By Ian Berry, Dow Jones Newswires; 312-750-4072 begin_of_the_skype_highlighting 312-750-4072 end_of_the_skype_highlighting; ian.berry@dowjones.com
(END) Dow Jones Newswires
January 17, 2012 16:05 ET (21:05 GMT)
DJ US GRAIN AND SOY REVIEW: Futures Rally On South America, Dollar->copyright