U.S. grains rose on Wednesday, with corn rebounding from early losses to post the longest rally since June, as dry weather in South America and the United States stoked fears that the slimmest grain stocks in six years could tighten further.
Soybeans rallied 1.7 per cent at the Chicago Board of Trade (CBOT), rising for the third time in four sessions, amid drier forecasts in Argentina and Brazil.
The sharp gains in soybeans propelled corn to the eighth straight day of higher prices -- the longest rally since rising nine straight days at the end of June.
Corn was lower for much of the session after the U.S. Energy Information Administration pegged the ethanol grind last week at 784,000 bushels per day, the lowest level since the agency started releasing weekly data in June 2010.
Wheat posted a modest gain, rising the fourth straight session, buoyed by dry weather in the southern U.S. Plains wheat belt.
"Let's face it, we need some rain," said Jack Scoville, grains analyst at The Price Group in Chicago.
There was little precipitation in the forecast for at least the next week in the southern U.S. Plains wheat belt or the corn and soy growing regions in South America.
"Argentina will dry down significantly the next week to 10 days, increasing stress on crops in the western and southern areas," said Andy Karst, meteorologist at World Weather Inc.
CBOT March corn ended 3/4 cents higher at $7.31-1/4 per bushel after earlier hitting a five-week high. CBOT March soybeans gained 1.6 per cent, or 23 cents, to $14.36-1/2 (all figures US$).
Prices have climbed in the wake of the U.S. Agriculture Department's forecast last week for the tightest global ending corn stocks in since the 2006-07 marketing season and the fewest global wheat supplies in four years.
Still, there were worries that the higher corn prices were reducing demand from ethanol plants, which consume more than 40 per cent of the corn crop in the U.S.
"That's going to be the big problem here in trying to extend these rallies. The ethanol demand has been hanging in there pretty good, but these prices aren't all that good for these guys," Scoville said.
The average profit margin for ethanol plants in Illinois was a negative 50 cents per gallon of fuel produced, according to Reuters data.
Wheat prices were underpinned by forecasts for continued dry conditions in the Plains states that grow most of the wheat in the United States. However, a cold snap this week is not expected to damage the dormant crop.
"It won't affect the hard red winter area in the Plains but it's an impressive cold air mass," Karst said.
Big South American harvests are needed in early 2013 to relieve the tight global soybean market. The United States is carrying the major burden of meeting global export demand.
Argentina, which is being relied on to produce a bumper soybean crop this year and replenish tight world supplies, is likely to face dry weather that could deplete moisture in the topsoil, forecasters say.
"The dry weather is a worry in the U.S. Plains and in South America, particularly Argentina, where delays to plantings could have a negative impact on both corn and soybean production," said Rabobank analyst Erin FitzPatrick.
-- Michael Hirtzer reports on the grain and livestock commodity markets for Reuters from Chicago. Additional reporting for Reuters by Sam Nelson in Chicago, Michael Hogan in Hamburg and Naveen Thukral in Singapore.