Morgan Stanley cautioned over lofty expectations for the US corn yield even as officials confirmed a bigger-than-expected deterioration in the condition of the crop, thanks to dryness depressing hopes for the wheat harvest too.

Morgan Stanley analysts cautioned over the impact on corn yields, which the US Department of Agriculture has pegged at an all-time high of 166 bushels an acre, of dryness which has left 47% of the Midwest with "abnormally dry" or "drought" conditions, according to official data.

 A year ago, when much of the areas was hit by floods which slowed sowings, the figure was 1.2%.

"While ideal weather in the yield-determining months of July and August could reverse current crop stress, poor early season conditions make record yields increasingly less likely," the analysts said.

The bank itself estimates the US corn yield at 161 bushels per acre and the harvest a 14.1bn bushels, more than 700m bushels short of the USDA forecast.

'Severe moisture stress'

The comments came as the USDA rated the US corn crop as at 72% in "good" or "excellent" condition as of Sunday, significantly higher than the 63% a year before but down five points in a week, a bigger drop than the market had expected.

In Illinois, the second-ranked corn-producing state, the proportion rated good or excellent tumbled by 13 points to 66% as dry conditions tested plants.

The proportion of Illinois topsoil seen as short or very short of moisture soared 30 points to 63% in a week.

The deterioration tallies with reports from commentators such as crop scout Michael Cordonnier, who on a tour of the state last weekend said that "in the southern third of the state, the crop is suffering from severe moisture stress, with the corn rolling its leaves early in the day".

"The amount of moisture stress exhibited by the corn crop was more than I had expected, especially for late in May. In southern Illinois, it looked and felt like it was the middle of August," Dr Cordonnier, at Soybean and Corn Advisor, said.

'Dry and windy conditions'

Dr Cordonnier warned too over the impact of a lack of moisture on Illinois wheat, of the soft red type, saying that "a lot of the crop did not look very good and it appeared to be shorter than normal, which I am sure is due to the dry conditions".

The proportion of Illinois wheat rated good or excellent tumbled 10 points to 70% over the week, which witnessed the first harvesting.

The overall US winter wheat crop was rated 54% in the top two bands, down four points on the week, and including a four-point decline to 39% in the proportion of the crop in Kansas, the top wheat producing state, seen in good or excellent health.

"Kansas producers saw no relief from the dry and windy conditions while temperatures hit the triple-digits [degrees Fahrenheit] for the first time this year," the USDA said.

At Commonwealth Bank of Australia, Luke Mathews said it was "unlikely" that US wheat yields would reach a USDA forecast on May 10 of an average of 45.7 bushels per acre "given the month-long deterioration in crop conditions".

How much rain? 

The dryness in winter wheat areas has been seen as lowering the likelihood of farmers planting follow-on soybean crops, so lowering prospects for the US harvest of the oilseed too, while raising the importance of rains expected for Midwest later this week.

"Forecasts are for cooler weather and show chances of rain for most of the US later this week," Mike Mawdsley at broker Market 1 said, noting "good rains" already in parts of Iowa, the top corn and soybean state, and Minnesota.

However, weather service WxRisk.com cautioned over expectations of bumper Corn Belt rainfall, noting that the European weather model "has shifted the storms a bit further to the south and east", bringing heaviest falls to the likes of Missouri and parts of Oklahoma and Kansas.

"The European model actually has only 0.25-0.50 inches of rains for Iowa and Illinois," WxRisk.com said.

"If this turns out to be correct, this would be a pretty big shock for the trade as most of the models have been showing significant rains for eastern Iowa and Illinois for several days. "