Soy rallies on concerns of US Midwest crop shortfall

CHICAGO: US soybean futures rose 2 percent on Monday, supported by concerns that dry weather in the US Midwest will push this year's harvest below expectations.

"This is the time of the year that beans need the rain to put on the pods and fatten up the ones that are there already," said Jerod Leman, a broker with Wellington Commodities Corp in Indiana.

New crop corn futures hit a contract high during overnight Globex trading but prices closed near session lows amid a late round of soybean/corn spreading. Corn demand from the livestock and ethanol sectors remained robust despite the strong prices.

The front-month soybean contract, which enters delivery later this week, hit its highest level in more than six months and corn's nearby contract was at its highest point since mid June.

"There is more fund money coming in, everyone is still concerned about the yields and beans need some rain," said Paul Haugens, vice president for Newedge USA.

New-crop November soybeans at the Chicago Board of Trade settled up 30-1/2 cents, or 2.1 percent, at $14.47 a bushel, and CBOT new-crop December corn ended up 3 cents per bushel at $7.70.

The front-month corn contract has risen for seven straight days, its longest winning streak since last year when prices rose over 10 trading sessions from Dec. 15 to Dec. 29. Nearby corn prices have risen 8.5 percent during the rally.

Firm crude oil and equities markets, as well as a weakening dollar, also added to the bullish tone over the grain markets. Soybeans received additional support from talk that China's soybean crop would be limited by dry weather.

Forecasts for a disappointing harvest were bolstered by the results of last week's Pro Farmer Midwest Crop Tour. Scouts on both the eastern and western legs found harvest potential for both crops worse than expected.

"The corn and soybean fields we observed support our constructive outlook on the space and reinforce our call that prices need to move higher," Morgan Stanley analyst Hussein Allidina said in a research note.

Operators will now be looking to the US Department of Agriculture's next weekly update on crop conditions, due at 2000 GMT, for more clues about the crop potential.

Analysts surveyed by Reuters were expecting a 1 percentage point drop in both corn and soybean condition ratings. A decline would put corn at its lowest level for late August since 2006.

CBOT soft red winter wheat closed lower as traders locked in profits from modest gains shortly before the closing bell.

CBOT December soft red winter wheat futures settled down 2 cents at $7.95 a bushel.

Copyright Reuters, 2011