Severe heat and dryness have hampered U.S. corn and soybean crops lately, causing futures prices to climb higher. If the adverse weather persists, an analyst said there was still more room to the upside.
Temperatures have hit triple digits (Fahrenheit) in key growing regions, lending risk to soybean crops and severely damaging corn crops. Scattered showers have provided some relief in the north, but both crops could be ruined without consistent precipitation.
"We have drought or near-drought conditions in almost all of Indiana, a good chunk of Illinois, and a fair spot in Wisconsin," said Sterling Smith, market analyst at Citi in Chicago.
Smith said the weather has been "absolutely detrimental to corn," because corn crops are entering the key reproductive stage where the plant is most vulnerable.
"If the forecast holds true and we don't see any rain over the next 10 to 14 days... there's a lot of corn that's going to be beyond the point of no return," he said. If that were the case, U.S. corn prices could reach even higher levels than they already have this year.
If July continues to be extremely hot and dry in the U.S. Midwest, corn and soybean crops will both be "moving from the area of trouble to disaster" for producers, said Smith.
However, right now, soybean crops are fairing slightly better than corn. The poor weather is making smaller beans, but has less potential to destroy the crop entirely, he said.
If there is rain in the key soybean-growing regions of the U.S. before July 22, "there's a pretty good chance some of the yield could be rescued," which would likely bring soybean prices down, he said.
Yet, Chinese demand for soybeans has also kept soybean values up, as crops from Argentina and Brazil produced less-than-expected yields, Smith said.
"Really for the next six or seven months the U.S. is going to be the world's principal supplier of soybeans. (But) our ending stocks are at historical lows. We are not flush with beans like we were in the year 2000," he said.
The high amount of corn planted for the year also limited seeded acres for soybeans, which meant supply was already limited before the bad weather hit the region, he said.
-- Ryan Kessler writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.