Jan. 6 (Bloomberg) -- Soybeans extended gains to a three- month high and corn rallied on speculation higher oil will boost demand for crops as a source of alternative fuel and concern that dry, warm weather will damage crops in Brazil and Argentina.

Before today crude oil gained 25 percent in the past three days and reached a five-week high as OPEC may be implementing a 9 percent production cut and concerns an expansion of the Gaza Strip conflict may disrupt Middle East supplies. Last year corn fell 11 percent and soybeans dropped 19.3 percent, while oil plunged 53.5 percent.

“Grains are supported by crude oil prices, reversing early losses on the firmer dollar,” Kenji Kobayashi, an analyst at Kanetsu Asset Management Co. in Tokyo, said by phone.

Soybeans for March delivery advanced as much as 2.1 percent to $10.0775 a bushel, the highest since Oct. 3, in after-hours Chicago trading and traded at $10.01 by 4:59 a.m. Tokyo time. The price touched an 18-month low of $7.7625 on Dec. 5 after reaching record $16.3675 in July.

Corn for March delivery gained 0.6 percent to $4.1375 a bushel. The price, which reached a record $7.9925 on June 27, touched $3.055 on Dec. 5, the lowest for two years.

The oilseed was also supported by speculation dry, warm weather will damage crops in Brazil and Argentina, the biggest producers after the U.S.

“Despite some recent rainfall in Southern Brazil, the weather outlook for key South American growing regions remains unfavorably warm and dry which is price-supportive for the grains,” Toby Hassall, an analyst with Commodity Warrants Australia in Sydney said.

Crude Drops

Crude oil for February delivery fell 2.3 percent to $47.69 a barrel at 4:11 p.m. in Tokyo on the New York Mercantile Exchange after gaining 5.3 percent yesterday to $48.81, the highest settlement since Dec. 1. The dollar traded at $1.3449 per euro from $1.3635 late in New York. The dollar traded as high as $1.3439 yesterday, the highest since Dec. 15.

In the export market, South Korea is seeking 55,000 metric tons of corn for feed production at a tender tomorrow, while Japan plans to buy 106,000 tons of milling wheat from the U.S and 21,000 tons from Canada for March shipment on Jan. 8.

Wheat for March delivery lost 0.6 percent to $6.1325 a bushel, declining for the first time in five days. The grain, which touched a record $13.495 on Feb. 27, plunged 31 percent last year, the first annual decline in four years.

To contact the reporter on this story: Jae Hur in Tokyo at jhur1@bloomberg.net

Last Updated: January 6, 2009 03:47 EST