Corn's rally slowed a little on Thursday, but did not evaporate, what with comparisons with 1988 around.

Matthew Rosencrans, a drought specialist with the US National Weather Service, said that the recent weather pattern - which since last year, and in some cases before that, has seen much of the US increasingly dry - resembles that of 24 years ago, the bogey year for US agriculture.

Then, large parts of the Midwest saw less than one quarter of normal rainfall in June and July. (For archive feature on 1988, click here.)

"Looking back to the 1988-89 crop year the monthly reports had the US Department of Agriculture predicting a 7.3bn-bushel crop on the June [Wasde crop] report prior to taking it down to 5.2bn in July and 4.921bn on the final in January of 1989," Jon Michalscheck at Benson Quinn Commodities said.

"The final yield was seen declining to 84.6 bushels per acre compared to 119.4 bushels per acre the previous year."

'Wrong forecast'

Against that backdrop, it was difficult for crop bears to get purchase, even with many factors swinging towards them.

There is some scepticism, after all, that the dryness and heat predicted by the European weather model will actually occur.

In the six-to-10 day outlook, for instance, while the European model does see a front coming into the Midwest, which will allow some cooling, "the rains are over Wisconsin, Michigan and Ohio, not over Illinois and Indiana" which need it most, Dave Tolleris at WxRisk.com said.

"I think this is wrong and too extreme."

'Demand destruction is here'

Another factor in bear's favour was signs of high prices rationing demand, with Valero mothballing a second ethanol plant, even as data showed US manufacture of the biofuel slowing.

"Ethanol margin are now negative from spot through to the July 2013 corn contract," GrainAnalyst.com trader Matthew Pierce said.

"Demand destruction is here."

And it may be having some impact on the cash market, with Mike Mawdsley at broker Market 1 saying: "I heard some basis started to back off in areas,"

Furthermore, US corn export sales are hardly expected to show up strongly in a weekly report later on Thursday, at 300,000-500,000 tonnes, in line with last week's modest 382,000 tonnes.

'Dire outlook' 

Still, there is also evidence of the dryness already causing some crop damage, with Mr Mawdsley saying he had heard of farmers "disking corn and planting soybeans in south west Indiana".

He added: "long this weather market will last is impossible to forecast, but some are looking for a dire outlook through July."

"Even in Iowa, where the crop looks good in areas, there isn't much in the tank below."

Corn for December added 0.9% to $6.38 ¾ a bushel as of 08:35 UK time (02:35 Chicago time), while the July contract moved up 1.0% to $6.56 a bushel.

'Could be construed as bearish'

The gains fed through somewhat into soybeans too, which added 0.1% to $14.14 a bushel for November delivery.

While hot weather is hardly helpful for the oilseed, unlike corn it is not entering the sensitive pollination period, with its vulnerable phase coming later, although dryness is believed to have deterred many winter wheat growers from planting follow-on soybean crops.

More on that will be known in a report on Friday, when the USDA unveils updated estimates for US crop sowings, besides data on crop stocks as of the start of this month.

Soybean sowings are expected to come in at 75.5m acres, above a March figure of 73.9m acres. Stocks are estimated at 635m bushels, compared with 619m bushels a year before.

"Both the increase in acres and large stocks, if realised, could be construed as bearish the market," Benson Quinn Commodities said.

'Close to 50% losses'

Still, it was wheat which actually did fall back, with heat and dryness not such an issue for the crop, which is largely already in the barn, for winter crop, or enjoying plentiful rains, for spring-sown fields in the northern US.

Sure, there are still worries about crops elsewhere in the world, such as Ukraine, where many crops are coming in poor.

"Harvests have started in more than half of the regions, earlier than usual except in the east where dry conditions have hampered crop development," consultancy Agritel said.

"Up to now, yields are rather close to last year in the west and the north. In the east and the south, production could be impacted by close to 50% losses in some cases."

But with a heap of Middle East orders on Wednesday going to Black Sea supplies anyway, Chicago wheat for September improved its competitiveness by edging 0.3% lower to $7.49 ¼ a bushel.

'Major drag on values'

Elsewhere, New York cotton for December recovered ground, adding 1.7% to 69.13 cents a pound.

"Dry weather across the Chinese and US cotton belts may support prices over the next few months. But the weakening economic outlook remains a major drag on values," Luke Mathews at Commonwealth Bank of Australia said.

Export sales data will be closely watched here for any evidence of cancellations from a huge order two weeks ago.

But in Kuala Lumpur, palm oil eased 0.3% to 3,007 ringgit a tonne, with Ker Chung Yang at Phillip Futures noting that investors were "sceptical ahead of a summit of European leaders later this week that looks unlikely to take concrete measures to solve the region's debt crisis".

Europe is a key palm oil importer.