GRAINS-Soybean futures head for 3% weekly gain on US weather worries, soyoil rally

By Tom Polansek

CHICAGO, July 18 (Reuters) - Chicago Board of Trade soybean futures rose for a third straight session on Friday as worries emerged about the risk for heat to threaten U.S. crops and expectations increased that the country's biofuel policy would boost demand for soyoil, analysts said.

Soybean futures were on track for weekly gains of about 3%, while soyoil futures set contract highs for a second day.

Grain futures also traded higher, with corn headed for weekly gains of about 4% as the market extended its rebound from contract lows on Monday.

The rallies were a turnaround after soy and corn futures have been under pressure from projections for large U.S. harvests and plentiful supplies from South America.

"Traders woke up to a grain market that looks more lively than it has in quite some time," said Arlan Suderman, chief commodities economist for StoneX.

Most-active CBOT soybean futures Sv1 were up 8-1/2 cents at $10.35 a bushel by 12:10 p.m. CDT (1710 GMT) and reached their highest level since July 3.

The market set a three-month low on Monday but began to recover on Wednesday on hopes for increased demand for U.S. supplies from Indonesia and top importer China.

Traders also focused on expectations for strong U.S. soyoil demand due to government mandates for renewable fuels that must be blended into the nation's fuel mix.

CBOT August soyoil BOQ25 set a contract high of 57.17 cents per pound before turning lower.

"The bean oil market has been on a tear higher," CHS Hedging said.

Traders monitored U.S. weather forecasts amid concerns about the risk for heat to damage developing corn and soy crops.

Temperatures will increase across the Corn Belt in late July and early August, weather forecaster Vaisala said. Heat stress is possible in southwestern areas but probably not across the heart of the region, the firm said.

CBOT corn Cv1 was up 7 cents at $4.28 a bushel after rising earlier this week on short covering and bargain buying. Wheat Wv1 was 14-1/4 cents higher at $5.47-3/4 a bushel as U.S. farmers moved closer to finishing their winter wheat harvests.