CHICAGO—Corn prices jumped 4.9% as forecasts for more hot, dry weather renewed concerns that a drought in the Midwest is taking a heavy toll on the nation's corn crop.
Corn futures surged in recent weeks as expectations fell for a corn harvest that was once expected to set a record. In a monthly supply-and-demand report last week, the U.S. Department of Agriculture pared its estimate for this fall's corn yield by a higher-than-expected 12% from its forecast last month, to 146 bushels an acre. The proportion of the U.S. corn crop in "good" or "excellent" condition as of Sunday fell nine percentage points from a week earlier to just 31%, logging another week of the worst conditions since 1988, a USDA crop report showed after grain markets closed.
Bloomberg News Albert Walsh walks in a drought-damaged cornfield in Illinois last week.
Corn futures for September delivery rose 36.25 cents—nearly the 40-cent limit imposed by the exchange—to $7.7675 a bushel at the Chicago Board of Trade. The front-month contract is up 41% since bottoming out in early June and is just 23 cents from the nominal record of $7.9975 a bushel reached in June 2011.
The drought is hitting a wide swath of the corn belt, including Iowa and Illinois, the two largest corn-producing states.
The National Weather Service predicts temperatures in the 90s and low 100s for much of this week in parts of Iowa, Illinois, Indiana and Missouri. A storm due to cross the region midweek won't be enough to ease drought worries, analysts said. The weather service also forecasts above-average temperatures and below-average chances of rain across the Midwest this weekend and next week.
Corn prices could set a new record in the next two to three weeks if the hot, dry weather continues, said Doug Bergman, a Chicago-based analyst with RCM Asset Management.
Still, Mr. Bergman said, prices could ease again heading into the corn harvest around September, when the market has greater insight into actual yields. Demand for corn from ethanol and livestock producers also is expected to ease at high prices. "A move back to six dollars is a very good possibility," Mr. Bergman said.
Corn futures surged in late June as traders braced for the drought to worsen just as the crop entered its delicate pollination phase, when moisture has its greatest impact on eventual yields. Parts of the U.S. corn crop are still pollinating, mainly in northern areas like Minnesota and parts of Iowa.
Crops in other areas have finished that step—but still face the risk of dry weather further reducing yields.
"Once you have pollination, now is the time to keep the kernels going, pump them up," said Jerry Gidel, a Chicago-based analyst for commodities brokerage Rice Dairy LLC. Dry weather "may mean [fewer] kernels as the plant keeps trying to keep itself alive," he said.
Soybean futures also jumped on drought worries. Unlike corn, analysts say, soybean crops could recover some yield potential if rains arrive in the next few weeks, since the key growing period for soybeans is in August. Still, world supplies this year have already been strained by a drought in South America, leaving soybean traders highly sensitive to any signs that U.S. output could be curtailed as well.
CBOT August soybeans rose 39 cents or 2.4% to $16.3375 a bushel.
Wheat futures rose, lifted by higher corn prices and uncertainty about how much wheat will be harvested in the Black Sea region. While world wheat supplies remain ample, analysts expect them to tighten compared to last year.
CBOT September wheat rose 36.75 cents, or 4.3%, to $8.845 a bushel. Kansas City Board of Trade September wheat rose 33.50 cents, or 3.9%, to $8.845 a bushel. MGEX September wheat rose 33.50 cents, or 3.5%, to $9.83 a bushel.
Write to Owen Fletcher at owen.fletcher@dowjones.com
A version of this article appeared July 17, 2012, on page C4 in the U.S. edition of The Wall Street Journal, with the headline: Drought Sends Corn Higher.