US corn futures hit record highs on Friday, as excessive rains in the flood-ravaged Midwest raised fears of reduced production and as US inflation worries boosted demand for commodities.

But the grain, which is used as a feedstock for animal feed and biofuel, traded below overnight record highs, as oil fell more than $1 a barrel after hitting a record on Libya's remarks that was mulling output cuts in response to potential US actions against producer countries.

Other grains were also higher as the dollar and the US stocks slumped after the Federal Reserve said inflation risks had increased.

Commodities are increasingly used by investors as a tool to hedge against higher inflation risk. "On top of the Fed's comments on inflation, concerns about more rains and an unstable oil market are causing a lot of volatility in the commodities market," said a trader at Woori Futures.

"Grains are off record highs and trade is likely to tread water, moving in tandem with oil prices."    

July corn futures rose 8-1/4 cents to $7.62 a bushel, after hitting an all-time high of $7.65, while new crop July 2009 gained 9-¼ cents to $8.25, a new record high.

The grain markets are awaiting USDA's early release on Monday on June crop plantings and quarterly stocks reports, which will detail its estimates on grain acreages in the flood-hit Midwest.

The American Farm Bureau Federation, the largest US farm group, said this week damage to crops from weather could top $8 billion this year, and much of that could be attributed to the flooding in several key farm states in the Midwest.

July soybean rose 0.3 percent to $15.79-½   a bushel and July wheat rose 0.8 percent to $9.31-¼   a bushel.

On the export market, a group of South Korean flour millers bought 21,500 tonnes of US No. 1 wheat for September shipping in a private deal on Thursday, traders said. - -Reuters