Remember July 3 2008?

The European Central Bank raised its interest rate to 4.25%, in a bid to tackle inflation (!). At the Wimbledon tennis championships, Roger Federer and Serena Williams were both on their way to becoming losing finalists – contrasting with their victories last weekend.

Anyway, it was also the day that held the record soybean price, of $16.63 a bushel, until it was shattered on Monday.

Chicago's July contract hit $16.79 ½ a bushel, before easing to close at $16.65 a bushel, a gain of 2.8% on the day.

And corn almost set an all-time high too, reaching $7.86 ¾ a bushel for July delivery, $0.13 a bushel below the record for a spot contract set in June last year.

'Looks very bad'

The catalyst for the buying, was US weather which, while now giving up the heat which has been taxing crops, is proving reluctant to surrender the dryness which has left large swathes of the Midwest in drought, or nearly there.

"The weekend heat and the lack of rainfall over the weekend along with the expected 10-day drier weather forecast has forced added risk premium in the market," US Commodities said.

Rival broker Benson Quinn Commodities said: "A cool front has moved into the Midwest since Sunday and will drop daily highs into the upper 80s to low 90s Fahrenheit for a few days, but crops are in desperate need of soaking rains which appear absent from forecasts till late July."

And this when crop condition is already bad, with Paragon Economics' Steve Meyer reporting that corn in southern Illinois and Indiana "looks very bad.

"Some acres will not be salvaged. Others will see very low yields."

'Dialling in huge losses'

No wonder analysts were looking at a big drop, of six points or so, in the corn rating (ie that viewed as in "good" or "excellent" condition) in the US Department of Agriculture's weekly crop progress report later on Monday.

For soybeans, the drop is forecast at five points.

Whatever, yield estimates continue to drop. "The erratic weather pattern continues to such an extent I've seen private estimates as low as 139 bushels per acre for corn," GrainAnalyst.com trader Matthew Pierce said.

US Commodities said: "The market is moving from a yield loss market to a rationing market if yields on corn indeed are down 15% or more. This would equate to a yield of 141 bushels per acre.

"The point is the trade is now dialling in huge losses. A sub-40 bushels-per-acre soybean yield is also widely discussed."

'Don't know yet…'

One difficulty on the horizon is that the USDA will on Wednesday unveil its latest Wasde crop report, which has a history of rarely budging its yield estimates in July, and if it does so, not by the huge amounts that analysts are talking about.

After all, "the point is that we don't know yet what the yield loss will be. And while we will get some first indications in August, we won't really get a good idea until September", Jerry Gidel at Rice Dairy said.

Which means the USDA figures and the market estimates are likely to remain far apart.

The prospect of the Wasde was expected by many investors to inspire a bit of profit-taking late on Monday, and into the next session.

Demand question

Certainly, benchmark lots ended off their highs.

The best-traded November soybean lot still ended up 2.8% at $15.47 ¾ a bushel, more than $0.30 off its intraday high.

But best-traded December corn closed only 3 cents off its limit-up high earlier on, finishing at $7.30 a bushel, a gain of 4.9%.

But then the demand destruction picture is not clear yet, to levels sufficient to cause bulls to think twice.

"Thus far the Chinese have not stopped their soybean purchases. End users are now panicking," US Commodities said.

For corn, "the one bright spot for demand is Japan. They need to cover 4m-5m tonnes of feed demand in the fourth quarter alone", Mr Pierce said.

"Historically they are 30-40% covered. This coupled to possible Chinese demand is the bright spot."

Ethanol debate

Sure, the question of whether the US Environmental Protection Agency will lower the ethanol mandate, so lowering the call from the biofuels industry on corn, continues to be debated in Chicago.

"This is just a discussion but at some point the EPA have to face the reality that current blend levels are unreachable unless corn prices break or crude rallies significantly," Mr Pierce said.

At Country Futures, Darrell Holaday said: "The losses in the ethanol are large and the political rhetoric on both sides of the ethanol debate will resurface."

Still, one consolation for corn bulls is that less ethanol manufacture means less production of distiller's grains, a byproduct which competes with the grain as an ingredient in animal feed.

Wheat gains

Wheat rose too, although it is not so directly affected by the US heat, with the winter crop largely in the silo, and spring wheat in more northerly areas which have enjoyed better weather.

Still, as another alternative to corn in feed, the grain added 2.7% to $8.28 ¼ a bushel in Chicago, for September delivery, remaining below Thursday's highs.

Kansas wheat for September ended up 2.6% at $8.29 ½ a bushel, with the grain making ground in Europe too, despite waning fears for losses to weekend floods in Russia.

November wheat closed up 2.8% at E248.75 a tonne in Paris, the contract's highest close, ditto London wheat for November, in ending up 2.5% at £185.00 a tonne.

'Slow cane-crushing pace'

And soft commodities put in a strong performance too, helped by their own weather fears, notably too much rain in Brazil, the top sugar producer, and too little in India, the second-biggest.

"New York futures have continued to creep up on the slow cane-crushing pace in Brazil and the developing vessel line-up at the ports," Macquarie said.

"Thai cash premiums have risen to 290 points above New York as buyers looking for quick Brazilian supplies have switched to other origins."

New York's October raw sugar contract closed up 2.0% at a two-month high of 22.70 cents a pound.

'Dizzy heights'

Brazil's weather helped arabica coffee too, in stoking fears for the quantity and quality of the world;s largest crop.

New York's September lot soared 3.3% to 182.35 cents a pound.

"Heading towards the 180.00 cents-a-pound area, speculative/day trader longs remained, and possibly added, as thoughts turned to the dizzy heights of last week and the potential fund short-covering that some believe should continue," Sucden Financial said.

"Although we did see some lightening of positions as a little origin selling entered overall gains remained the order of the day."