Scorching heat across the U.S. Midwest has almost certainly cut corn yields, and it appears that the grain futures market has largely factored this into prices.

So is the weather-fueled rally over? Traders and analysts said the corn crop was "still a work in progress" and high heat expected later this week could affect the market.

But rains, albeit sporadic and scattered last week in some key crop states like Iowa, seem to have blunted the rally in corn that started two weeks ago amid the first forecasts for above-normal temperatures in the Midwest grain belt.

Grains analyst Rich Feltes of R.O. O'Brien in Chicago noted that new-crop corn contract finished flat in the latest week due to pull-push effects of rains and scorching weather.

"It was like December corn CZ1 did nothing," Feltes said.

"The weather is still going to be important next week. This is still very much a weather deal," he said on Friday.

The heat, with temperatures soaring past 100 degrees Fahrenheit (38 degrees Celsius), has already damaged the corn crop, which is pollinating and setting yields.

Analysts said there was increasing talk of corn yield averaging in the mid-150s bushels per acre, off the U.S. 

Department of Agriculture's estimate of 158.7 bushels.

Investment bank Goldman Sachs (GS.N) said in a note to clients that it had reduced its estimate of this year's U.S. corn yield by three bushels to 156 bushels per acre.

Goldman said the realized and forecasted temperatures in the Midwest in July pointed to an average daily temperature of 77.5 degrees F -- the highest monthly average since at least 1960.

CORN YIELD SEEN IN MID-150s BUSHELS/ACRE

Darrel Good, professor emeritus and agricultural economist with the University of Illinois, said that while there was a chance the condition of the corn crop would improve with rains,

he was looking at yields in the mid-150s. 

"Corn yields are impacted by a complicated array of factors, which occur over a long period of time and even after the pollination stage. So, August weather will be relevant because how robust the kernels are will be determined then.

"But I will be in the camp that is expecting yields to be in the mid-150s. The USDA number was put together several weeks ago.

The crop is a work in progress," he added. 

The USDA's August report is expected to shed more light on the state of the crop, especially in the northern Plains where the department was resurveying four key states.

Grains analyst Dan Manternach of Doane Advisory Services in St. Louis, Missouri, said 56.5 percent of farmers who took part
in his company's poll said they were "very worried" that the searing heat could hurt pollination and the filling of ears.

Manternach said he was expecting the markets to react to the return of hot weather to the Midwest this week.

"Our view is that the market has taken out (too much weather premium) prematurely. The heat could come back with a vengeance (this) week," he added.

But analyst Karl Setzer of MaxYield Cooperative said while the market could still react to the weather, the "weather rally" could be over.

"We've made pretty good gains," he said, adding that additional gains were going to be tempered by private crop surveys showing the crops were not as badly stressed as wasthought.

"The corn crop in Iowa showed some signs of stress on Wednesday, but for the most part, the crop is looking phenomenal," he added.