File image: Reuters

Soybeans rallied more than 2 percent to hit another peak on Tuesday, while corn rose more than 1 percent on evidence of shrinking crops due to a severe drought and the need to temper demand through even higher prices.

Corn and soybean futures at the Chicago Board of Trade resumed their climb fueled by the worst drought in half a century, trying to retest record highs as money managers bet that end-users would scramble for the dwindling supplies.

“The guys who are long this market are the fund managers, while end-users are not well covered,” said Mark Kinoff, president of Ceres Hedge in Chicago.

“They are going to find that the beans are in worse shape than expected,” he said, referring to a crop tour in the US Midwest farm belt to assess yield and production that has taken on additional importance this year due to the drought.

The Pro Farmer tour, an eclectic mix of crop forecasters, grains analysts, farmers and journalists, kicked off on Monday and the early findings have confirmed trade expectations that the crops will be smaller than current government forecasts.

The scouts will examine fields in Illinois and Nebraska on Tuesday and could offer another glimpse of the drought damage in the world's top grains-exporting nation. The tour will announce its national yield and production estimates on Friday.

Chicago Board of Trade new-crop November soybeans rose 2.5 percent to $17.24-3/4 a bushel by 16:09 SA time, just under the contract high of $17.25. December corn rose 1.7 percent to $8.37-3/4 a bushel, the highest since Aug. 10.

The corn yield in Ohio was projected at the lowest level in 10 years after severe drought and hot temperatures sapped the crop during its most vulnerable period of pollination, scouts on the tour found.

The yield in the No. 8 corn-growing US state was estimated at 110.5 bushels per acre (bpa), down sharply from the USDA's estimate earlier this month of 126.0 bpa and the three-year tour average of 160.5.

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.

The US corn harvest got off to the fastest-ever start last week as early planting last spring and a hot summer accelerated crop development, the USDA said in a report.

Four percent of the crop was harvested as of Sunday, according to the weekly crop progress report released after the market closed on Monday.

Wheat futures were supported by continued speculation that Russia could curb exports due to a poor crop. September wheat was up 0.7 percent at $8.85-3/4 per bushel after hitting $8.86-3/4, its highest since Aug. 10.

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.

In Europe, milling wheat futures were also higher with front-month November up 0.9 percent at 265.75 euros a tonne, its highest level since Aug. 10. - Reuters