U.S. corn futures rose four per cent on Thursday to resume a drought-fueled bull run after forecasts for rain in parts of the Midwest were considered to be too little to reverse the worst conditions for the crop in some 25 years.
These rains, however, could benefit soybeans, which enter their crucial development stage in August, and that held gains in soy futures to the low single digits.
Wheat climbed to a 13-month peak on spillover strength from corn and technical buying above previous highs. Investors also watched adverse weather in major Black Sea region exporters such as Russia, which pressured global supplies.
The worst drought in the Midwest since 1988 has done considerable damage to this year's corn crop. The U.S. Department of Agriculture on Wednesday slashed its corn yield estimate for the world's top grower and exporter by an unprecedented 20 bushels to 146 bushels per acre.
Half of the U.S. corn crop began pollinating in late June under triple-digit temperatures and severe rain deficits, conditions which damaged yield potential beyond repair. Forecasts suggested more stressful weather was on the way.
"There's hope for some rain in the far southeastern Corn Belt over the next few days and up in the northwest, but very little in between. And there are indications that the heat is moving back in," said Brian Basting, analyst with Advance Trading.
"The heat may not be as bad as what we had last week, but it certainly won't be good for corn that's still pollinating."
Drought conditions in the Midwest worsened over the past week. A weekly U.S. drought monitor showed about a third of the nine-state region in severe to exceptional drought in the week ended July 10, up from about a quarter of the region a week ago.
Investment bank Goldman Sachs on Thursday raised its price forecasts for wheat, corn and soybeans due to the worsening drought and cut its corn yield forecast for the second time in less than two weeks.
Barclays also raised its price forecasts for the three crops due to the drought, the bank said in a note.
Little relief was expected from the severe dryness, with only minor amounts of rain expected in some areas of the Midwest over the next week to 10 days, an agricultural meteorologist said.
"There's not much change in the forecast. Some light rains are expected in the southeast Midwest into the weekend and some showers in the eastern Dakotas," said John Dee, meteorologist for Global Weather Monitoring.
"For the second half of next week there could be some rainfall of 0.3 inch to 0.8 inch with about 75 to 80 per cent coverage of the Midwest," Dee said.
Chicago Board of Trade (CBOT) new-crop December corn rose 28-1/4 cents, or four per cent, to $7.32-1/4 a bushel. The lightly traded spot month rose 20-1/2 cents, or 2.7 per cent, to $7.71-1/4 a bushel (all figures US$).
New-crop November soybeans added 6-1/2 cents, or 0.4 per cent, to $15.29 a bushel, while the front-month contract gained 2-3/4 cents, or 0.2 per cent, to $16.25-3/4.
Commodity funds bought an estimated net 20,000 corn contracts on the day along and a net 4,000 each of soybeans and wheat, trade sources said.
Strong export sales added support in both markets as USDA data on Thursday showed corn sales last week hitting a two-month high. Top importers Japan and Mexico made their largest purchases since April despite rising prices.
Net soybean sales declined from the prior week, but traders were encouraged by continued robust late-season sales of old-crop soy.
September wheat was up 20-1/2 cents, or 2.5 per cent, at $8.46-3/4 a bushel after peaking at $8.58.
-- Karl Plume reports for Reuters from Chicago. Additional reporting for Reuters by Sam Nelson, Naveen Thukral and Ivana Sekularac.