U.S. grain and soybean futures edged higher on Monday as traders worried dry weather will trim output in Argentina, the world's top exporter of soy products and second-largest corn supplier.
All eyes are on weather models as Argentina and Brazil must produce large crops to meet strong demand for soybeans from top importer China.
Traders broadly expect large harvests in South America in the coming months, but every twist in the weather is being scrutinised amid tight global supplies.
After more than a month of almost unrelenting Southern Hemisphere summer sunshine, corn and soy fields need new moisture to ensure their healthy development.
"The rains haven't come yet," said Mike Krueger, president of brokerage The Money Farm, which counts farmers in Argentina among its clients.
Corn in Argentina will endure "a lot of pretty serious stress" from dryness in the next three days before rain is expected to fall, said Drew Lerner, president of World Weather Inc. Soybeans also will suffer, he said, adding that crop conditions will worsen if the weather stays dry in February.
At the Chicago Board of Trade, March soybeans rose 0.5 percent to $14.47-3/4 a bushel, and March corn jumped 1.2 percent to $7.29-1/4 a bushel. March wheat gained 0.4 percent at $7.79-1/4 a bushel.
Soybean futures were underpinned by firm cash prices and talk that China will need to source higher volumes from the United States in the near term as infrastructure bottlenecks delay shipments from Brazil.
Brazil is forecast to surpass the United States as the No. 1 exporter and producer of soybeans this season, with a record 85-million-tonne crop that has already begun to be harvested in top soy-growing state Mato Grosso.
Big trading houses are dispatching an armada of ships to Brazil, hoping for a good spot in line to load up the record crop.
Brazil's crop is 30 percent bigger than last year's, which is good news for big importers like China. However, the South American farming giant has added no new capacity to its ports.
Private exporters struck deals to sell 220,000 tonnes of U.S. soybeans to China for delivery in the next marketing year, the U.S. Department of Agriculture said on Monday.
The USDA said separately that 40.7 million bushels of U.S. soybeans were inspected for export last week, within expectations for 39 million to 43 million bushels.
Weekly U.S. export inspections were 22.3 million for wheat, above expectations for 16 million to 20 million, and 21.1 million bushels for corn, above expectations of 8 million to 11 million.
WHEAT EXTENDS GAINS
Wheat futures extended gains after rising 1 percent on Friday on better-than-expected U.S. exports last week and concerns about dry weather in the U.S. Plains.
Still, large overseas harvests are expected to compensate for lagging production in the United States.
The front-month CBOT wheat contract is expected to end 2013 at $6.80 a bushel, down from the closing price of $7.78 at the end of 2012, according to the average estimate in a Reuters survey of analysts and traders.
Analysts see Chicago corn prices falling by 22 percent to under $5.50 per bushel by year's end and soybeans by 17 percent to $11.83 per bushel as world supplies are projected to recover.