Investors who have been building weather-risk premiums in U.S. wheat futures are expected to expand their protective play into corn this week amid forecasts for high heat and little rain.

Temperatures are set to rise in the southern portion of the Midwest grain belt, which produces the bulk of the country's corn and soybeans, and in the Mississippi Delta, where the Southern corn harvest precedes that in the Midwest. Wheat futures at the Chicago Board of Trade posted the biggest weekly gain in nearly 16 years last week amid growing concerns that hot and dry weather in the southern Plains could slash yields, especially in top winter wheat state Kansas.

Kansas and other southern Plains states like Oklahoma and Texas are just coming out of a devastating drought that parched the region and decimated wheat production last year.

The surge in CBOT wheat futures, which hit their highest level in nearly eight months on Friday, have reversed their discount to corn futures -- which could mean that less wheat could be used as an alternative feed to corn.

The U.S. Department of Agriculture has been counting on an early winter wheat harvest to help cushion extremely tight supplies of corn held over from last year's harvest.

"There will be a heat dome during the Memorial Day weekend (on May 28) across the entire Midwest grain belt, with temperatures in the 90 degrees (Fahrenheit)," said grains analyst Tim Hannagan of PFGBest in Chicago.

"Investors are starting to build weather premiums to reflect the uncertainty ahead of us. Without water nothing grows."

The mildest winter in decades got corn seeding off to a fast start in the Midwest this year, and expectations are for the harvest to begin as early as August instead of the usual September.

But the plants are vulnerable to harsh weather, and any drop in yields could scuttle high hopes for this year's crop to boost ending stocks, which are projected to fall to the lowest level in 16 years this summer in the United States. The U.S. Department of Agriculture has forecast a record U.S. corn crop this year at 14.790 billion bushels, with ending stocks next summer seen at a record 1.714 billion bushels -- more than double this year's projected 851 million. DOME OF HEAT FIRST MAJOR CHALLENGE TO CORN CROP
Meteorologist Joel Widenor of Commodity Weather Group in Bethesda, Maryland, said a high pressure ridge would raise temperatures in the Midwest and Delta region.

He said temperatures could be in the 80s degrees F to low 90s F this week in the southern Midwest and in the low to mid 90s in the Delta region. Widenor said corn in the Delta region could be vulnerable to the heat wave as the plants would be pollinating -- a key stage of development when yields are set.

The ridge -- also referred to by traders as a dome -- could be the first weather test for this year's corn crop which has otherwise been thriving under favorable weather conditions. Widenor said it was too early to say if the heat would continue into June, when some of the corn that was planted early in the Midwest could be pollinating.

The surge in wheat futures due to dry weather in the southern Plains and in Russia could impact the usage of the grain as an alternative feed to corn.

The livestock sector has been relying on wheat since prices dipped below those for corn, but with wheat prices now at a premium demand could shift back to corn. "We were expecting corn stocks to be looser (next summer) but we first have to get there. The trade is already worrying about rain and the balance sheet," said grains analyst Don Roose of US Commodities in West Des Moines, Iowa.

"It's a balancing act and it's a lot about the weather," he said, adding that dry weather in the U.S. southern Plains, Russia and northern China was fueling the wheat rally.

He also said that the USDA's revising up 2011/12 (Sept/Aug) U.S. corn ending stocks by 50 million bushels in the May 10 report due to expectations for an early harvest and increased use of wheat as feed might have to be revised down.

"The wheat market has gone up and the government might have to revise its balance sheet for old-crop corn," he added.

CBOT wheat prices rose by just over $1 per bushel last week as dry weather concerns in the United States and Russia, a major exporter, triggered heavy short-covering by speculators who are holding a near-record short position in the market. There are also expectations that exports from the United States could rise in the wake of crop trouble in France, Europe's top exporter of the grain, and in Germany.

Two years ago Russia curbed exports after a severe drought slashed grain production in the country. French wheat exports were down 17 percent since the start of the 2011/12 season on July 1 from the same year-ago period.

"We are going to become the port of origin for high quality milling wheat," said PFGBest's Hannagan. "Last year we had one of the worst crops in the world, but this year the crop looks like a high protein crop, which is food for millers."

He said the United States would continue to be a major supplier of feed wheat to Asia despite a better quality crop this year, but added that it might not be as dominant an exporter as last year when the crop was off-quality.