CHICAGO U.S. grains rallied on Monday as the dollar eased, with corn jumping 3 percent and rebounding from its 1-1/2 year lows last week, as dry weather in the U.S. Midwest grain belt threatened yields.
Wheat futures rose for the first time in five sessions, but the euro zone's debt crisis and flagging economies in the United States and China, the world's largest importer of commodities, remained concerns for investors in risk assets.
"After the sell-off last week, it's just a little bit of a recovery. The weekend precipitation was a little light compared to expectations and the forecast looks questionable," said Marty Foreman, analyst at Doane Advisory Services in St. Louis.
"The outside markets are a little less negative and the (grains) market is justified in coming back," Foreman added.
Chicago Board of Trade July corn settled 16-1/2 cents higher at $5.68 per bushel, the biggest daily gain in about three weeks, while July wheat climbed 15-1/2 cents to $6.27-3/4, a rise of more than 2 percent.
The U.S. Midwest will see little rain over the next week to 10 days, but moderate temperatures will help slow deterioration of the corn and soybean crops, an agricultural meteorologist said.
"It's not the best of forecasts, but the fact there will not be any extreme heat will marginalize the impact of the dryness," said John Dee, meteorologist for Global Weather Monitoring.
The U.S. Agriculture Department late on Monday rated the corn crop 72 percent good to excellent, unchanged from last week and 1 percentage point better than analyst expectations.
The soybean crop was 65 percent good to excellent in its first rating of the year, down from expectations of 69 percent.
July soybeans edged 4-1/4 cents lower to $13.40 per bushel after earlier bounding to a session high of $13.55-3/4 after the USDA reported that China purchased 165,000 tonnes of U.S. soybeans.
Many deferred soy contracts gained but the recent slow pace of export sales weighed on the spot contract. Lower domestic prices and poor crush margins have limited demand from China, which buys about two-thirds of global soy exports.
Spread traders also bought July corn and sold July soybeans, pushing soybeans' premium to corn to its lowest level in about two weeks.
"The Chinese got hammered on their board margins again overnight ... and that means that the crushers are not in a buying mood," ABN Amro analyst Charlie Sernatinger said in a note to clients.
Government data last week showed large speculators, including hedge funds, held their smallest long position in corn futures in two years while they cut their long stake in soy futures for the fourth consecutive week.
"The underlying factor is that a lot of the money managers continue to pull money out of commodities," said Karl Setzer, analyst at MaxYield Cooperative in West Bend, Iowa.
(Additional reporting by Sam Nelson and Mark Weinraub in Chicago, Naveen Thukral in Singapore, Svetlana Kovalyova in Milan and Valerie Parent in Paris; Editing by Marguerita Choy, David Goodman, Jim Marshall and Bob Burgdorfer)