Soybeans rallied to a one-month high on Monday, while corn prices were the highest in 10 days as the first reports from a crop tour of the Midwest farm belt showed severe damage from the worst drought in half a century.
Images, tweets and news reports from the tour reinforced trade expectations that crop production would shrink below current estimates by the U.S. Department of Agriculture, which has cut its corn yield forecast more than 40 bushels due to drought damage.
It was a strong technical close for the markets, with corn, soybeans and wheat finishing near the highs of the day in what seemed like a resumption of the drought rally toward record peaks after a week-long retreat of prices.
With markets set to reopen in less than two hours, there was fresh fodder for traders. USDA's crop progress report said four per cent of the corn crop had been harvested by Sunday to make for the fastest harvest on record.
Farmers in Missouri -- the No. 10 corn state which produced 350 million bushels last year and bore the brunt of the drought -- had harvested 18 per cent of their crop, compared with two per cent a year ago. In No. 8 state Kansas which produced 449 million last year, the harvest was 17 per cent complete.
At the Chicago Board of Trade (CBOT), gains in corn and soy helped lift wheat futures which were also supported by expectations that Russia, the world No. 4 exporter, could curb sales due to drought damage in its crop.
"There are tweets from the tour about how poor the crops are," said Charlie Sernatinger, vice-president of sales at ABN Amro in Chicago. "That's the main reason (for the rally)."
Scouts on the Pro Farmer crop tour pegged corn yield at 97.8 bushels per acre through the first five stops of one route in Pickaway, Fayette, Madison, Clark and Champaign counties in Ohio.
The tally compared with about 161.3 bushels last year and 165.4 bushels over the past three years.
In South Dakota, scouts came across field after field where corn had been harvested for silage to feed on-farm cattle -- which means less corn being harvested for grain.
After surveying five corn fields in southwest South Dakota, the average corn yield was pegged at 50 bushels per acre, compared with 127.8 bushels a year ago and the three-year average of 140.9 bushels.
Analysts also attributed the gains in corn and soybeans to active buying by hedge funds and grain companies and the need to temper demand so that supplies do not run out.
"USDA has a lot more cutting to do," said grains analyst Dan Basse of AgResource Co. in Chicago, referring to lower crop estimates. "Don't know who will have to go without it."
Analysts are expecting the surge in prices to reduce the amount of grain used by various industries, including livestock and ethanol.
CBOT new-crop December corn rose two per cent to end at $8.23-3/4 a bushel, the highest since Aug. 10. November soybeans rose 2.3 per cent to $16.83-1/2, the highest since July 20.
December wheat rose 0.9 per cent to $9.02-3/4 per bushel.
Although corn prices have retreated four per cent from the record high of $8.49 set on Aug. 10, they have gained 58 per cent since June 1. Similarly, although spot soybeans have fallen about six per cent from the all-time high of $17.77-3/4 per bushel set on July 20, they are still up 32 per cent from June 1.
Wheat futures were also supported by continued speculation that Russia could curb its exports due to a poor crop.
Russia's two main grain market analyst groups cut their 2012 grain and wheat harvest forecasts on Monday after the start of harvesting campaigns in the Urals and Siberia showed weak crop prospects.
-- K.T. Arasu writes for Reuters from Chicago.