Cotton futures extended their rally, fuelled by dry weather in the US and India and the tighter stocks forecast in this week's Wasde, while grains eased further, as weather fears in the US continue to ease.

December cotton futures, the most widely traded contract, are up 12.9% on the week.

"The price surge was sparked by the USDA predicting a steeper than anticipated decline in global cotton stocks in the upcoming 2016-17 crop year," said Commerzbank.

"China in particular looks set to see stocks reduced considerably on the back of lower production in conjunction with higher demand."

Cotton substitutes

The Wasde also gave a big boost to US cotton exports.

But Commerzbank warned that "it remains to be seen whether this will actually happen given the massive price increase in recent days".

"Instead, cotton manufacturers could look for cheaper suppliers such as India or lower-cost alternatives such as artificial fibres."

Still, Commerzbank said "prices of well under 70 US cents per pound are likely to be a thing of the past".

Plenty of cotton

But Madeleine Donlan, at CBA warned that "while global supply is slowly moving in the right direction the market is not short of cotton.

"Some degree of correction is possible in the nearby contracts to bring the curve back towards carry configuration," Ms Donlan suggested.

Still, conditions in the US supportive for prices.

"Forecasts for West Texas, the largest US cotton growing region, indicate above‑average temperatures and below‑average rainfall for the next fortnight or so," said Ms Donlan.

"Gujarat, India's top cotton producing state, also remains too dry," she added. "Forecasters say that significant rain is required to avoid serious production cuts."

Indian cotton prospects are highly dependent on the progress of the annual monsoon.

"Monsoon rains have been best in Maharashtra, but variable in Gujarat, so overall production potential appears mixed," noted Jack Scoville, at Price Futures Group.

December cotton futures finished up 0.6% on the day, at 74.28 cents a pound, after hitting two year highs of 75.00 cents a pound.

Heavy Brazilian production

Raw sugar futures fell back, after Unica, the Brazilian cane body, announced rising production, as dry weather allowed workers to get back into the fields after weeks of delays.

Cane mills in the Brazilian Centre South cane belt increased sugar production by some 130% over the second half of June, to 2.79m tonnes, ahead of analyst expectations.

October raw sugar in New York settled down 3.0%, at 19.31 cents a pound.

October white sugar in London settled down 2.5%, at $531.10 a tonne.

French, German wheat prospects cut again

Wheat futures in Paris rallied, as FranceAgriMer unveiled another big cut to French wheat prospects, as 49% of the soft wheat crop were seen in good or excellent condition, compared to 59% last week.

Some 7% of the crop is estimated to have been harvested, compared to 1% a week earlier.

This is still well behind the  pace of last year, when 31% was harvested.

French wheat condition has been hurt by heavy rain, and has seen a series of sharp downgrades.

Germany has also seen rain damage to its wheat crop, as the country's association of farm cooperatives saw the crop at 25.4m tonnes, down 4.4% year on year.  This is still in line with the five-year average.

September wheat futures in Paris rose 1.0%, at E160.00 a tonne, helped by a weaker euro.

September wheat futures in Chicago finished down 2.0%, at $4.24 Ύ a bushel, in the face of continued heavy harvest pressure.

Weather still setting the pace for row crops

Grain futures continue to swing wildly, based on every fresh run in the weather models, as markets add and remove risk based on the prospects that hot dry weather will hit the US row crop belt during the key point of crop development.

Markets are getting into place ahead of the weekend, with the Sunday weather run likely to set the tone for next week.

"Sunday night weather models will once again hold great importance for telling us weather the heat and dryness hang around into August, or whether the adverse conditions are simply a blip on the radar of big crops," warned Tregg Cronin, at Halo Commodities.

December corn futures finished down 1.8%, at $3.58 Ό a bushel, as the weather models suggested a less threatening outlook toward the end of July.

Heavy soy long weighs

Markets are also readying for the Friday Commodity Futures Trading Commission release, which will shed light on fund positioning.

Richard Feltes, at RJ O'Brien, suggested that "more flushing of sizeable managed fund soy long is necessary before market can initiate steady uptrend".

November soybean futures finished down 0.6%, $10.57 Ό a bushel.