COMMODITIES : Grains Prices Rise on New Drought Fears

Grain and soybean futures prices rose sharply Thursday, abruptly ending a two-day decline as rain tapered off in the Farm Belt and drought fears regained the upper hand on the Chicago Board of Trade.

On other markets, livestock and meat traders were startled by a government report of big grain stocks; energy futures fell; precious metals were mixed, and stock index futures advanced.

The National Weather Service’s latest 30-day outlook, issued late Wednesday, gave a big boost to grain and soybean futures, analysts said.

“They’re calling for almost no rainfall from Illinois east to Ohio and higher-than-normal temperatures in Iowa, Illinois and Missouri, the three biggest soybean states,” said Joel Karlin, research analyst with Research Department Inc. in Chicago. “That’s one area that really needs rain.”

Wheat Shortage Feared

Wheat futures turned in the strongest performance, with most contracts advancing the expanded 30-cents-a-bushel daily limit.

The rally was driven by concern about further drought damage to the spring wheat crop in the northern Great Plains and worries that Wednesday’s heavy rains in the central and southern Plains would hamper progress on the winter wheat harvest, Karlin said.

Rich Feltes, director of commodity research with Refco Inc. in Chicago, said the recent sharp rise in corn and soybean meal prices has made wheat more attractive as a livestock feed and sparked fears of a physical shortage of wheat.

“There is not enough wheat in 1988-89 for both animals and humans,” Feltes said. “We’ve got to do something quickly to provide an economic disincentive for wheat feeding.” In other words, wheat prices must rise, he said.

Some oat and soybean contracts also posted limit gains, and prices for July deliveries of all grains and soybeans soared freely. The exchange removed limits on the July contracts Wednesday in a routine action linked to their upcoming expiration.

After the close, the Agriculture Department issued its monthly grain stocks report, which showed larger-than-expected U.S. stocks of corn, wheat and soybeans as of June 1.

Analysts pronounced the report bearish but said weather factors likely would continue to dominate the grain trade.

Wheat settled 27.50 cents to 33.50 cents higher, with July at $3.87 a bushel; corn was 8.25 cents to 18 cents higher, with July at $3.27 a bushel; oats were 7.75 cents to 18 cents higher, with July at $3.53 a bushel, and soybeans were 24.50 cents to 55 cents higher, with July at $9.86 a bushel.

The USDA also issued its monthly hogs and pigs report, which surprised observers with its larger-than-expected estimate of the nation’s hog herd as of June 1. The report also showed a sharply higher tally of pigs born from March through May than most analysts had expected, and it indicated that hog producers intended to breed a relatively large number of sows through November.

Oil Prices Fall

The report was called bearish for futures prices, but analysts noted that it reflected breeding intentions prior to this month’s sharp rise in feed-grain prices. Producers likely will reduce their breeding plans in light of the higher hog-production costs, analysts said.

“It’s kind of hard to look at the corn and soybean prices we’ve got right now and believe producers are going to breed at these levels over the next six months,” said Tom O’Hare, an analyst with Smith Barney, Harris Upham & Co. in New York. “That would be like the stock market rallying to new highs with the prime rate just having increased 10 points.”

In trading ahead of the report, live cattle settled 0.30 cent lower to 0.43 cent higher, with August at 64.60 cents a pound; feeder cattle were 0.20 cent to 1.05 cents lower, with August at 73.97 cents a pound; hogs were 0.25 cent to 1.18 cents higher, with July at 46.32 cents a pound, and frozen pork bellies were 0.53 cent lower to 0.63 cent higher, with July at 37.25 cents a pound.

Oil prices dropped in fairly active trading on the New York Mercantile Exchange after Egypt announced that it was lowering its crude export prices for the first half of July.

West Texas Intermediate crude oil was 27 cents to 33 cents lower, with August at $15.16 a barrel; heating oil was 0.64 cent to 1.04 cents lower, with July at 40.88 cents a gallon, and unleaded gasoline was 0.68 cent to 1.23 cents lower, with July at 51.94 cents a gallon.

Gold retreated slightly and silver advanced a bit in light trading on the Commodity Exchange in New York.

Gold settled 40 cents to $1.10 lower, with August at $437.70 an ounce; silver was 5.3 cents to 7.4 cents higher, with July at $6.678 an ounce.