U.S. corn futures rallied and approached an all-time high Friday morning on forecasts for rising temperatures and only light rain across important growing areas of the U.S. Midwest where crops were being threatened by the worst drought since 1988, analysts said.
Wheat and soybean futures also rose sharply on concerns about deteriorating crop conditions and cuts to production estimates.
"The market is fearful and forecasting models are offering just cause," INTL FCStone commodity risk manager Jaime-Nolan Miralles said.
Very warm temperatures accompanied by only light "teaser" rains over the next week may slow deterioration of corn and soybean crops, but there won't be enough rain to end the drought, an agricultural meteorologist said Friday.
"There is not much change, about the same forecast, with very warm weather and restrictive rains over the next week," said Drew Lerner, meteorologist for World Weather Inc. "Crop conditions and yields will keep declining."
Lerner said temperatures in the drought-stricken Midwest would remain in the mid-80s to upper 90s degrees Fahrehti, with a few readings in the triple digits, over the next week. Rais of 0.25 to 0.75 inch should cover about three-quarters of the Midwest.
The front-month July Chicago Board of Trade corn contract rose 20-3/4 cents to $7.92 a bushel, approaching its all-time high of $7.99-3/4. The more-active December corn contract on the Chicago Board of Trade was 13 cents higher at $7.45-1/4 by 8:20 a.m. CDT (1320 GMT). The key new-crop contract has risen about 47 percent in a blistering four-week rally.
The Midwest drought has done considerable damage to this year's corn crop. The U.S. Department of Agriculture 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.
Drought in the Midwest has worsened. 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.
"A correction in prices after the release of USDA data has given opportunity for traders to buy back into the market," said Serene Lim, a commodities analyst at Standard Chartered Bank in Singapore. "We are going to see more heat and dryness in the Midwest, which may severely impact soybeans as well."
CBOT November soybeans rose 22-1/2 cents to $15.51-1/2 a bushel, with the prolonged drought seen taking an increasing toll on the soybean crop in coming days.
"Today is corn, but with each day that passes, we will be one day closer to beans fuelling this market rally," INTL FCStone's Nolan-Miralles said.
Wheat prices also rose with animal feed usage likely to be buoyed by the surge in corn prices.
"Demand for wheat as a feedstuff is growing as corn becomes more expensive," Commerzbank said in a market note.
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.
CBOT September wheat climbed 13 cents to $8.59-3/4 a bushel after peaking at $8.65-3/4, the highest price for the contract since June 2011.
Milling wheat futures in Paris also advanced with the weakness of the euro providing additional support.
November wheat climbed 2.2 percent to 259.75 euros a tonne after setting a contract high of 261.00 euros.