Grain prices held strong gains on Monday as fresh fears for European and former Soviet Union wheat crops added to contract for US corn and soybeans, stoked by weak prospects for Midwest rain.
Investor attention in Chicago centred on disappointing rainfall over the weekend in major US growing regions and the prospect of little relief to come.
"There were rains noted in Iowa, Wisconsin and into Minnesota, but these were far too limited to help the withering crop in most of the central states," GrainAnalyst.com trader Matthew Pierce said.
WXRisk.com said that while there will be "some areas of showers and thunderstorms over the next five days over the Dakotas and the Midwest, this stuff activity will be widely scattered and for the most part the rainfall amounts will be under 1.0 inch".
The series of downgrades to US corn crop hopes extended with CropCast cutting its yield forecast to 118 bushels, undercutting a 122 bushels-per-acre figure from Lanworth on Friday, and a Goldman Sachs estimate of 126 bushels per acre a week ago.
'Spate of weather woes'
However, worries over wheat crops outside the US also bleeped larger on the market radar, with Barclays Capital cautioning that "while market focus has rightly been on the sizeable cuts to US corn and soybean supply estimates, the wheat market has also been witnessing a spate of weather woes".
The US Department of Agriculture's estimate of a 49m-tonne Russian wheat crop "appears too high" given widespread concerns over the dryness-hit crop, BarCap analyst Sudakshina Unnikrishnan said.
Crop prices as of Monday's close
Chicago soybeans, (November contract): $16.43 ½ per bushel, +2.8%
London wheat, (November): £192.00 per tonne, +2.3%
Chicago corn (December):$8.14 per bushel, +2.2%
Paris wheat, (November): E262.00 per tonne, +1.7%
Chicago wheat, (September): $9.14 ¼ per bushel, +1.4%
Kansas wheat (September): $9.17 per bushel, +1.2%
Paris rapeseed (November): E503.50 per tonne, +1.0%
The USDA will in its next monthly Wasde crop supply and demand report, on August 10, cut its estimate for harvests in Russia and in neighbouring Kazakhstan and Ukraine too, where lack of rainfall has also lowered production prospects, she said.
"Further weather-related supply issues for wheat to look out for include wet weather in Western Europe that has hampered harvest progress, dry weather in Western Australia and the potential effect of an El Nino," she added.
'Best-kept secret in grain markets'
In Western Australia, Australia's top grain-growing state, CBH, which handles most of the crop's crop, said that grains output would drop to 9m-11m tonnes in 2012-13, from the record 15m tonnes last time.
And traders at a global, European-based commodities house highlighted the setbacks that a contrast between too much rain in northern Europe, and too much heat in the east, has wrought to the region's crop.
"We have already seen high temperatures and drought decimate the Bulgarian and Romanian corn crops and now there are question marks over the wheat crop in northern Europe,"
"In the UK, there is increasing evidence of disease damaging both quality and quantity and it is likely that German crops will be little different, having 'enjoyed' similar weather conditions."
"We have also not seen much wheat harvested in the northern half of France yet, so the jury is still out there as well."
Germany is a key European source of higher protein milling wheat, while France is the top producer of wheat, larger softer milling varieties, overall.
"What may be the best-kept secret in grain markets at the moment is what is happening in Europe. If yields in Europe are below expectations, it may well be enough to send prices higher again," the traders said.
Open interest signal
However, even as prices rose again on Monday, with Chicago's best-traded December corn lot setting a contract high, there was some caution as to how much further the rally can last, given the damage that high prices will do to demand.
Matthew Pierce, noted "the constant and growing decline in open interest in soybeans" in Chicago, meaning that investors are closing contracts, rather than laying in fresh exposure to the oilseed.
"For the fifth day in a row, open interest is down. Dating back to next Monday, soybeans are down over 60,000 lots," he said.
"Corn lost as well from Friday but less than half of soybean losses. The decline in soybeans is a worrisome fact for bulls."
'Thousands of family farms getting out of business'
Furthermore, protesters from the livestock industry on Monday stepped up their challenge to US politicians to lower the amount of ethanol which blenders must mix into gasoline, in an effort to lower the pressure from biofuel groups on thinning corn supplies.
Livestock producers have urged the Environmental Protection Agency to waive the so-called ethanol mandate for the first time.
"At what point does the impact of high feed costs on livestock producers become high enough to warrant a temporary waiver of the mandate?" a report from Paragon Consulting and Steiner Economics asked.
"In some areas livestock production has been tenuous enough that the current feed crisis could lead to thousands of family farms getting out of business.
"This kind of structural change would have long lasting repercussions for US meat production going forward."