Corn, wheat rally as weather, dollar spark short covering

• Hot, dry forecast for parts of the US farm belt
• Big fund net short position in grains fuels short covering
• Hong Kong row tempered hopes of China demand for US soy

CHICAGO: US corn futures jumped on Thursday to a five-week high as a weaker dollar, forecasts for hotter, drier weather in the Midwest corn belt and a further rebound in ethanol production triggered bargain buying and short-covering by managed funds.

Wheat futures also rallied on expanding dryness across the Plains wheat belt and on the weaker greenback, which makes US shipments more attractive to importers.

Soybeans, however, drifted lower as escalating tensions between the United States and top soy importer China weighed on prices.

Chicago Board of Trade (CBOT) July corn futures rose 7 cents to $3.27-1/2 a bushel, the highest since April 23. The contract briefly traded above its 50-day moving average, a key technical level it has not breached since January.

CBOT July wheat jumped 10 cents to $5.14-1/2 a bushel, while July soybeans fell 1-1/2 cents to $8.47 a bushel.

"The corn market has a lot of fund shorts in it and some of the long-range weather forecasts are somewhat threatening," said Jim Gerlach, president of A/C Trading. "Managed funds going into the corn growing season with their seventh largest net short position doesn't make a lot of sense to me."

Overly wet weather has stalled late-season corn planting in some areas of the Midwest, potentially triggering a shift in acres to more soybeans.

Meanwhile, sections of the central US farm belt, including some winter wheat areas, are forecast to shift to a hotter, drier pattern over the next 10 days, according to meteorologists.

Corn drew some support from US government data showing a fourth straight weekly increase in ethanol production and a drop in ethanol stocks to the lowest since January.

Rising US-China tensions and China's continued buying of Brazilian soy for shipment during the traditional US export season weighed on soybeans.