Corn prices could yet test their record high, meaning the rally has another 25% to go, if the US sees more of the dry weather which has sent its condition into a "nosedive" Rabobank said, cutting its yield forecast.

There was still potential for corn crops to recover, even after their worst start to the season since the drought year of 1988, when the yield plunged 29%.

In 1992 too, crops suffered a poor start into June, only to recover rapidly to post what was then a record yield, of 131.4 bushels per acre.

However, "we do not consider this a true comparison", Rabobank said, noting forecasts for further hot and dry weather ahead, as corn approaches the vulnerable pollination phase.

Yield downgrade 

Soil moisture deficits built up over the last month, during which most of the crop has received less than three inches of rain, "are unlikely to be rebuilt" before pollination ramps up to a peak  in mid-July.

Forecasts are projecting "only scattered amounts" of rain, of 0.5-1.0 inches, in the last week of June, a period during which temperatures "are forecast to be severely hot, with maximums reaching 100 degrees Fahrenheit over almost all of the Corn Belt", the bank said.

The bank, cutting its yield forecast by 3 bushels per acre to 154 bushels per acre, forecast that US corn inventories would end 2012-13 below the psychologically important 1bn-bushel market for a second successive season.

"Our production estimates are now 33m tones below current US Department of Agriculture estimates – equivalent to South America's entire corn export estimate in 2012-13."

Record high price? 

And on prices, the bank forecast that futures may "reach $7.50 a bushel in coming months, and even threaten previous record highs of $7.99 a bushel for December contracts" unless conditions improve.

"We believe that weather concerns will continue to drive prices."

The December lot spent most of Thursday in positive territory before closing down 0.2% at $6.32 ¼ a bushel in Chicago.

 'Very dangerous market'

Rabobank's analysis contrasted with warnings from some other brokers against following the market higher after gains of more than 15% already this week in the December lot.

"This market is now very dangerous. The bull rubber band is stretched," US Commodities said, noting impact of high prices in lowering demand from ethanol plants, which are seeing a series of temporary shutdowns, and weak exports.

US weekly export corn sales, at less than 300,000 tonnes, below market estimates, and the more than 750,000 tonnes achieved in the same week last year.

However, Rabobank pointed to physical evidence already of yield damage, with corn widely reported to be pollinating "at lower heights than normal, which on its own is enough to stunt yield development."

Separately, Purdue University crop sciences professor Emerson Nafziger said that it was "difficult for short [corn] plants to form the complete canopies that plants need for maximum yield".

In part, this was down to lower leaf area, and an inability to "form the complete canopy needed to intercept nearly all of the sunlight".