Soybean futures surged to an all-time high on Monday while corn futures soared five per cent and briefly rose their daily limit as continuing dry conditions in the U.S. Midwest looked more likely to decimate yields in America's crop belt.
Three weeks of sustained hot, dry weather across much of the United States has propelled the grain complex higher, with corn leading the way.
After the markets closed, the U.S. Department of Agriculture reported that 40 per cent of the U.S. corn crop was rated in good to excellent condition -- a drop of eight percentage points from the previous week and the biggest weekly decline in nine years.
Sizzling temperatures abated in the Corn Belt over the weekend, but rains this week were expected to miss the areas that need moisture most. Forecasts indicate that Iowa and Illinois, the two biggest U.S. corn and soybean producing states, should be mostly dry for the next 10 days.
About half the U.S. corn crop has begun pollinating, the most critical phase in determining yield, and the period when the crop's daily moisture needs are highest. Without rain, production prospects are certain to fall, analysts said.
"This may really be a catastrophe, unless this weather pattern turns around very quickly," said Dan Basse, president of AgResource Co. in Chicago.
At the Chicago Board of Trade (CBOT), most-active December corn settled up 37 cents, or 5.3 per cent, at $7.30 a bushel after rising the 40-cent limit to $7.33, a life-of-contract high (all figures US$).
Front-month July soybeans settled up 45-1/4 cents at $16.65 per bushel after reaching $16.79-1/2, the highest-ever spot soybean price on continuous charts. Benchmark November ended up 42 cents at $15.47-3/4, after setting a contract high at $15.71-1/4.
Most-active September wheat settled up 22 cents at $8.28-1/4 a bushel.
The surge in grain prices will reduce margins for meat companies such as Smithfield Foods, Tyson Foods and others. It also will fan fears of global food inflation, which had waned this spring as prices slumped due to the prospect of bumper U.S. crops.
Given the slide in weekly crop ratings, traders expect the USDA will cut its corn yield forecast in a monthly supply/demand report due out Wednesday.
USDA currently forecasts a record-high corn yield for 2012 of 166 bushels per acre, a figure based on historical trends that the agency has not adjusted since this spring.
Trade estimates were closer to 150 bushels per acre last week, with further reductions likely.
"If the forecast stays dry for another day or two, there will be a majority of the traders leading toward a yield closer to 140 than 150," said Terry Roggensack, analyst with the Hightower Report.
While the most pressing worries concern the corn crop, the threat of yield loss has spread to soybeans as well.
USDA said after the close that 40 per cent of the U.S. soybean crop was rated good to excellent, down from 45 per cent a week earlier and in line with trade expectations.
The U.S. Mississippi River Delta and parts of the southern Midwest should see welcome rains this week. But other areas remain dry.
In terms of global soy supplies, there is no margin for error with the U.S. crop. Drought slashed the last South American soybean harvest, leaving the United States, the world's top producer, to fill the breach.
As a result, even though most of the U.S. soybean crop won't start its key growth phase until August, the dry summer weather so far has driven CBOT soy prices to record-high levels.
"South America seems to have basically sold out" of soybeans, Roggensack said, "and they went through maybe August.
"So, for a six-month period, starting in September, it's going to be extremely difficult to get beans bought. They just aren't available globally, anywhere," he said.
Added Basse, "The market is trying to understand what this razor-thin or deficit supply situation means for us going forward."
Wheat followed corn and soybeans higher. Traders also noted floods in Russia's southern wheat export region wreaked havoc on road and rail links to the main export outlet. But the impact on exports may be delayed as port stocks are high, trade and analyst sources said.
Russian Railways, the state rail operator, has halted traffic on a line linking the port, the main outlet for grain export from Russia, the world's second-biggest exporter, to the rest of the country to make repairs after the flooding.
-- Julie Ingwersen covers ag commodity markets for Reuters in Chicago.