U.S. grains staged a sharp rally on Tuesday amid a fresh inflow of investment money near month's end, with wheat posting its biggest daily gain since September on a sharply reduced assessment of the fledgling U.S. Plains wheat crop.
Record-low wheat condition ratings due to very dry soils underlined supply fears following a string of weather-reduced harvests around the world.
Corn and soybean futures notched their largest gains in at least a month. Traders said investment funds bought the most contracts in those markets since Oct. 18.
"You had a market that was a little asleep and we had some fresh buying coming on," said Sterling Smith, market strategist at Citigroup in Chicago. "You have enough concerns to get a weather story going even though (troubled growing conditions are) not centred in one place."
Wheat and corn futures changed hands at the highest prices in about two weeks while soybeans hit their highest point so far this month as traders covered short positions, bracing for more gains on fears that crop yields in the United States, South America and Australia may miss expectations.
Wheat gained for a sixth straight session, its longest rally in four months, while soybeans rose for a third consecutive session.
The markets were also buoyed by news that euro zone countries and the International Monetary Fund clinched an agreement on reducing Greece's debt in a breakthrough to release urgently needed loans.
Benchmark hard red winter wheat futures rose the most at 3.5 per cent. Kansas City Board of Trade (KCBT) HRW wheat posted its largest premium since Nov. 6 over the more widely traded Chicago Board of Trade (CBOT) wheat contract.
"Because of the drought conditions in the hard red winter wheat producing states here in the U.S., we finally decided yesterday to buy KC hard red winter wheat and to sell Chicago 'soft' red," analyst Dennis Gartman said in a note to clients.
"KC 'hard' wheat is relatively cheap compared to Chicago in the old crop futures and that should work to our advantage," Gartman said.
KCBT December wheat rose 31-1/2 cents to $9.15-1/4 per bushel while CBOT December wheat climbed 24 cents to $8.73 (all figures US$).
In a weekly crop progress report on Monday -- its final one for the year -- the U.S. Department of Agriculture said the condition of the winter wheat crop fell to an all-time low for late November, continuing a series of lows struck this month amid persistently dry weather.
It said the share of the U.S. winter wheat crop rated good to excellent fell to 33 percent due to dry conditions in the Plains, as the plants headed into winter dormancy.
KCBT wheat for July delivery, the first contract to reflect harvest of the emerging crop, hit a premium of 55-3/4 cents per bushel above new-crop Chicago July wheat, a record-wide spread for those contracts.
While matching analyst estimates, the poor U.S. crop ratings added to concerns about dwindling global stocks, already stretched following weather-disrupted seasons in the Black Sea region and expectations that adverse weather will cut yields and quality in harvests in Argentina and Australia.
Ken Smithmier, grains analyst at the Hightower Report in Chicago, said the spread could widen to $1 per bushel after rains in Australia damaged the country's high-protein milling wheat. Asian buyers may now be forced to buy HRW wheat from the United States, he said.
"We've been recommending that (trade) since the spread was at 37 to 40 cents and we definitely feel like it can go to a buck or more. It will probably take some time into 2013," he said.
South Brazil dry for soy
December corn rose 12-3/4 cents to $7.60 a bushel, extending gains from Monday when the corn market breached technical resistance with background support from rain delays to planting in Argentina. Corn earlier lagged the rising wheat and soybean markets.
"But (corn) did follow along and we did see some funds coming in and willing to buy it," Citigroup's Smith said.
January soybeans gained 1.7 per cent, or 24-1/2 cents, to $14.49-1/4 a bushel. Soyoil futures rose a sixth straight session in the longest rally since August, boosted by a rash of U.S. export sales of the vegoil.
The soybean market has been lifted this week by concerns over dry growing conditions in southern Brazil, which have raised some doubts about the extent to which upcoming South American crops can replenish tight global stocks.
Soybean prices are too low and do not reflect the possible risk to tight global supplies if the critical South American soybean harvest in early 2013 suffers weather damage, Hamburg-based oilseeds analysts Oil World said on Tuesday.
-- Michael Hirtzer covers the grain and livestock commodity markets in Chicago for Reuters. Additional reporting for Reuters by Gus Trompiz in Paris and Colin Packham in Sydney.