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CHICAGO/NEW YORK, July 20 (Reuters) - Grain prices set record highs on Friday and weather forecasts showed little to no relief in sight from the worst U.S. drought in more than half a century, feeding worries about food inflation at home and abroad as supplies dwindle in the world's largest grain exporter.
The United Nations' Food and Agriculture Organization (FAO) said it was concerned about the spike in grain prices, but it did not yet see the current situation as a repeat of the 2007-2008 food crisis when high prices sparked riots in many poor countries.
"We are concerned for two reasons: first the pace at which price rises are taking place and second because, at least for the time being, there seems to be no relief in prices, in particular for corn, soybeans and wheat," said Abdolreza Abbassian, a senior economist and grain expert at the FAO.
Abbassian noted, however, that rice is abundant and wheat stockpiles are better than in 2008.
"We do not see any production or supply problems with rice. That is very important for food security of millions of people around the world," he said, while cautioning that the U.S. drought would tighten world grain supplies in the coming months.
At the Chicago Board of Trade, soybeans for August delivery set a new record high of $17.77-3/4 a bushel. Corn for September corn jumped to a record $8.28-3/4 a bushel, and September wheat gained 8-1/4 cents to $9.44-3/4, a new 4-year high.
Much of the U.S. winter wheat crop has already been harvested, escaping the worst of the drought. But corn in the heart of the Midwest is struggling with pollination, its key growth stage, and soybeans are being stressed as they enter their pod-filling stage, the key for final yields.
"Everything today is focused on the weather for soybeans," said Karl Setzer, an analyst at MaxYield Cooperative in West Bend, Iowa.
"Historically, August is when the soy yield is determined, but because everything is early this year, we are seeing the buying interest show up earlier. We know we've lost corn yield, but we don't know how much."
Rains this week provided little relief, said Don Keeney, meteorologist for MDA EarthSat Weather, and more searing heat was in the forecast for the week ahead.
"It will be dry and very hot in the area with temperatures in the 100s (degrees Fahrenheit) in St. Louis Sunday through Thursday, reaching 106 on Wednesday."
"It's the same old general theme: dry in the southwest Corn Belt and some showers in the north and east," said Drew Lerner, a meteorologist for World Weather Inc.
Corn, soybean and dairy farmers in Iowa County, Wisconsin, were glad for 1-1/4 inches of rain late this week, the county's agricultural agent Gene Schriefer said.
"We are smiling, but we are going to need more rain," he said, noting that soil below the surface was still extremely dry. "It's going to be a case of just living hand to mouth on moisture for the rest of the summer."
The most expansive drought since 1956 was drying up waterways and slowing river shipments of commodities to U.S. Gulf export ports.
One year after record flooding on some parts of the Mississippi River, the U.S. Army Corps of Engineers was busy in many locations dredging areas of low water to improve channels for barges filled with grain, coal, scrap and other materials.
Worries persisted about water for irrigation and use by cities and towns. Restrictions have ranged from the state of Nebraska reducing river access for some farmers to limits on watering lawns. Drip bags around stressed trees were common in many towns and cities.
Hotter-than-normal temperatures were expected through at least October in most of the lower 48 states, according to the National Oceanic and Atmospheric Administration.
"This week's rain helped ease stress in about one-third of the Midwest, but rains remain focused along north and east edges of the belt during the next 15 days," said CWG meteorologist Joel Widenor.
The U.S. government, which has slashed its weekly condition ratings for corn and soybeans for the last month, is due to release an updated weekly crop rating and crop progress report on Monday.
Crop analysts have been lowering production estimates for corn and soybeans on an almost hourly basis, leading up to what will be an historic government monthly crop report on August 10.
Those estimates will likely create more angst about the potential effects of crop losses. Corn and soybeans, for example, are used in hundreds of products from biofuels to livestock feed, edible oils and plastics.
Grain farmers were seen as well-protected by crop insurance, while livestock farmers were expected to bare the biggest losses as soaring feed costs erase profits.
The effects on many food manufacturers and packagers may be moderated by declining costs of other commodities and hedging strategies aimed at keeping grain costs in line. Fears of turning off consumers in a weak economy may also keep packaged food companies from raising prices, at least in the short term, some analysts said.
"The spike is isolated, and thank goodness it is because these companies have no room for pricing," said Edward Jones analyst Jack Russo.
Producers of chicken, pork and beef may be forced to raise prices as feed costs rise, said Sterling Smith, vice president of commodity research at Citibank's Institutional Client Group.
"What I would be most concerned about is livestock down the road," Smith said.
Water is another commodity being carefully watched.
"Drought conditions that pervade most of the U.S. are unlikely to affect the fiscal results of most public water utilities," Fitch Ratings said, citing Texas and Colorado as two states that have been hard-hit by drought but where water supplies were still holding up.
Fitch said it sees "some risk to water utilities in communities with populations under 25,000 residents located far from larger communities."