Grain futures - Weekly outlook: January 2 - 6

Forexpros – Last week saw U.S. grain futures rally to multi-week highs as adverse weather conditions in Argentina and Brazil underlined concerns over crop conditions in the South American countries, boosting hopes for a lift in overseas demand for U.S. supplies.

U.S. grain futures posted strong gains in the final two weeks of 2011. Corn, wheat and soybean prices all rose in the nine of the last ten trading sessions.

Traders have been focusing on crop prospects in Southern Hemisphere countries in recent weeks, as most Northern Hemisphere grain crops have been harvested by now.

South America is the main competition for U.S. exporters and a smaller crop outlook there would likely mean greater demand for U.S. grains.

On the Chicago Mercantile Exchange, corn futures for March delivery traded at USD6.4712 a bushel by close of trade on Friday, rallying 4.17% over the week.

Corn futures advanced 2.8% in 2011, the third consecutive annual gain as growing global demand, particularly from the ethanol sector, eroded inventories. Prices rose to a record high of USD7.9900 a bushel in June.

Corn prices rose to a seven-week high on Friday after agricultural meteorologists said that hot and dry weather conditions were expected to linger across major corn-growing areas in Argentina, the world’s second largest shipper of the grain.   

The dry weather conditions were likely to reduce soil moisture, potentially threatening yields and weighing on the quality of the harvest. Argentina typically starts reaping its grain in March.  

Meanwhile, soybeans for March delivery gained 3.25% on the week to settle at USD12.1188 a bushel by close of trade Friday. Prices rose to a seven-week high of USD12.1862 on Wednesday.  

Despite rallying nearly 9% in the past two weeks, soybean prices dropped 14% in 2011, the first annual decline since 2008.

Industry weather group T-Storm Weather said Friday that almost every soy-growing area of Argentina and southern Brazil received less than 50% of average rainfall since the beginning of December.  

The heat of the Southern Hemisphere's summer has been compounded by La Niña, a phenomenon in which tropical waters in the Pacific Ocean turn unusually cold.

The La Nina weather pattern typically brings heavier rainfall in Asia and drier weather in South America.

Elsewhere on the Chicago Board of Trade, wheat for March delivery surged 4.8% over the week to settle at USD6.5312 a bushel on Friday. Wheat futures advanced to a seven-week high of USD6.5575 on Wednesday.  

Wheat prices tumbled 18% in 2011, the biggest annual drop since 2008, after Russia and the Ukraine let a ban on wheat exports expire in July, alleviating concerns over tightening global supplies.

Wheat futures continued to draw support from dry weather conditions in the U.S. Great Plains. Weather service provider Telvent DTN said Thursday that weather conditions in the southern Plains was forecast to be mostly dry with above-normal temperatures over the next 10 days, fuelling concerns over the dormant U.S. winter-wheat crop.

Corn is the biggest U.S. crop, valued at USD66.7 billion in 2010, followed by soybeans at USD38.9 billion, government figures show. Wheat was fourth at USD13 billion, behind hay.

The Chicago Mercantile Exchange will remain closed on Monday, January 2 for the New Year’s holiday.