GRAINS-CBOT wheat extends rally on crop rating drop, Chinese heat wave concerns

By P.J. Huffstutter

CHICAGO, May 20 (Reuters) - Chicago Board of Trade wheat futures surged to a two-week high on Tuesday, as a weaker dollar and unexpected decline in U.S. crop ratings encouraged more short-covering after prices hit a five-year low last week.

Corn futures followed wheat higher, while soybeans ticked lower, as traders watched for fresh news about U.S. trade talks and tried to glean information about whether recent rains have caused material damage to South America's crop.

Argentina's agricultural heartland has been lashed by heavy rains in recent days, leaving some soy fields underwater with up to 400 millimeters (15.75 inches) of precipitation recorded in certain areas bringing widespread flooding.

The most-active CBOT soybean contract Sv1 inched down 0.1% to $10.49-3/4 a bushel at 1610 GMT, while corn Cv1 added 1.01% to $4.52 a bushel. And the most-active wheat contract Wv1 was up 2.88% at $5.44-1/4 a bushel.

Wheat futures were the focus for much traders, who have been closely tracking both the condition of the U.S. crop and reports of weather issues globally, market analysts said.

In a weekly report issued after Monday's close, the U.S. Department of Agriculture rated 52% of the U.S. winter wheat crop in good to excellent condition, down 2 percentage points from last week and below analyst expectations.

Meanwhile, China's Central Meteorological Observatory had warned that dry, hot winds this week could damage winter wheat crops in major producing areas, including Henan - a key wheat-growing province known as the country's granary.

Karl Setzer, a partner at Consus Ag Consulting, said he had received reports from business contacts inside China of temperatures hitting 108.3 degrees F in parts of Hebei, China, and 106.7 degrees F in sections of Henan - along with strong winds whipping across farm fields.

"I've seen wheat crops handle intense heat over a few days and be OK," Setzer said. "But you put heat with high winds, and that's not a good combination for the health of a crop."