It seemed a fair bet that the rally in grains might lose a bit of steam heading towards the close of play.

After all, Wednesday is a holiday in the US, Independence Day, meaning no trading at a time when every weather forecast can make a difference to pricing potential, in meaning more, or less, stress for dryness-tested Midwest crops.

However, that was to reckon without the appetite for piling on long positions in the face of the plunge in the condition of corn and soybean, and even spring wheat, crops, as revealed in US data overnight, besides consistent readings, for now, of more heat and dryness.

"Grain markets continue to fire on all cylinders driven by the continuation of hot dry weather in the states," traders at a major European commodities house said.

'Drought has worsened'

"A strong ridge of high pressure [will] keep the majority of the corn and soybean belt hot and mostly dry in the upcoming three-to-five days," said Gail Martell at Martell Crop Projections.

"Drought has worsened in all but a sliver of the northern Midwest," noting that June temperatures were set to "make a new record", and "on the heels of the hottest spring on record".

"This explains the free fall in crop ratings in the southern and eastern Midwest in late June," she said.

Corn condition has fallen particularly far in Illinois, Indiana, Ohio and Missouri, although in the latest week the more northerly states such as Wisconsin began to suffer too.

'Good rains'

OK, it looks like cooler weather is on its way.

"Toward the end of the week, the heat dome [will] shift westward into the Rocky Mountains, opening the door for cooling in the Great Lakes and reducing temperatures a bit in Ohio, Michigan and Indiana," Ms Martell said.

WxRisk.com's David Tolleris said that, further ahead, the GFS model is showing that for July 9-13 "a large cool high pressure covers all of the Midwest and Upper Plains", with some "good rains" coming in around July 13-14.

"There is no sign of the heat coming back."

'Potential is deteriorating'

But what damage has already been done, especially to corn, which is undertaking its sensitive pollination period?

"As long as we do not get rain, the corn and soybean production potential is deteriorating," Paul Georgy at Allendale said.

US Commodities said: "More private forecasters are pushing corn yields down to 150-153 bushels per acre on corn versus the US Department of Agriculture at 166 bushels per acre.

"Soybean estimates are down to 41-42 bushels per acre. The market is now in the yield loss trading."

Indeed, at the University of Illinois, Darrel Good said that "there is considerable risk" of a corn yield below 150 bushels per acre, with Sal Gilbertie at Teucrium Trading noting widespread talk of a yield even below last year's 147 bushels per acre.

Contract highs

The impact on prices was to send Chicago's December corn lot to its best-ever close of $6.74 ½ a bushel, although earlier contracts did better.

The July lot soared 4.6% to $7.18 ¾ a bushel, albeit in thin trading.

November soybeans closed up 2.4% at $14.74 ¾ a bushel, also the contract's best ever finish, while wheat got a bit of help not just from fellow grain corn, but by a surprise decline in the health of the spring wheat crop, albeit to a still promising 71% good or excellent.

This, on top of lower-than-expected US sowings of the grain as revealed on Friday, has trimmed expectations for production.

… and more contract highs

Minneapolis spring wheat itself soared 4.0% to $8.97 ½ a bushel for September delivery, while Chicago's September contract added 3.5% to $7.99 ¼ a bushel, earlier crossing $8.00 a bushel for the first time in nine months.

European contracts continued the roll of honour, with Paris wheat for November adding 1.7% to E236.00 a tonne, a closing high for the contract.

Ditto London wheat for November, which ended up 2.0% at £178.00 a tonne.

'Producers caught out'

Among soft commodities, sugar maintained its rally too on weather fears, this time in Brazil, where heavy rains have hampered the cane harvest and lowered sucrose levels in the crop besides fouling up logistics and leaving buyers waiting.

The structure of pricing, with the July lot expiring on a high, "shows that producers have been caught out by the weather as well as traders and that the so-called statistical surplus is, as usual, moving further forward", Nick Penney at Sucden Financial said.

The complex "is beginning to reflect a growing weather risk component… perhaps as worries that an El Niño event may affect the tail of this year's Brazil Centre South crop and that this would shorten the current campaign and further reduce the eventual cane crush numbers".

Macquarie said it saw prices "remaining above 21 cents a pound short-term", although it acknowledged that, after what it termed "short-term supply hiccups", there is "more selling pressure to come.

Raw sugar for October closed up 2.7% at 21.98 cents a pound in New York, the highest close for a spot contract in more than two months.

Harder softs

Coffee rose on weather fears too, soaring 3.4% to 180.45 cents a pound for October, amid concerns for the impact of Brazil's rains on both the quality and quantity of the crop – if with concerns about how far the rally can last for now.

And cocoa gained ground too, adding 2.6% to $2,350 a tonne for New York's September contract, helped by firming cash prices in Ivory Coast, the top producer, as supplies reaching port from the mid-crop tail-off.