Sell-downs in agricultural commodities have created a "buying opportunity" in most crops, Rabobank said, warning of "critical shortages" in corn ahead, and record-low wheat supplies in Europe.

The bank reduced some of its forecasts for crop prices, especially for Chicago soybeans, for which expectations were slashed by up to $1 a bushel, and Kuala Lumpur palm oil, for which projections were cut by 200 ringgit a tonne.

However, even in these crops, the bank kept its estimates above the futures curve, implying buying ahead, viewing only cotton and sugar as unlikely to rebound from a "bearish trend" in the agricultural commodities spurred by fund sell-downs rather than crop fundamentals.

"Although the supply outlook has improved for some markets, markets are falling below fundamental fair values, and a recovery is necessary," the bank said.

"Short-term price weakness is likely to leave most agri commodities undervalued, presenting a buying opportunity."

'Critical shortages'

For corn, prices will start a rebound late this year, with the current malaise "significantly at odds with the scale of uncertainty in the global corn balance sheet", the bank said.

Investors' confidence that demand rationing in corn was occurring fast enough was "misplaced", given the rate of ethanol production, and cuts to livestock and poultry numbers "insufficient to meet the requirements of a  near-record tight US corn balance sheet".

"Demand rationing in the US balance sheet is not progressing fast enough to avert critical corn shortages in late 2012-13.

"Higher corn prices are needed to pressure producer margins."

Record-low stocks

Chicago wheat prices would be underpinned by a switch by importers to US exports, as the Black Sea's competitively-priced supplies run low following drought-hit harvests, Rabobank said, in comments which came as Ukraine was reported by traders to have banned shipments.

"The [US] export pace will increasingly strongly in the October-to-December quarter as importers switch from alternate origins to North America."

In the European Union, the quest for wheat would drive the bloc's stocks, as a proportion of use, to 6.1% at the close of 2012-13, down 3.4 points year on year, and the lowest since records begin in 1960.

"The EU export programme has had a seasonally-strong start, with export licenses only 200,000 tonnes behind the 2011-12 pace despite a 6m-tonne decrease in production."

Furthermore, the bank said that there was a significant risk of its price forecasts proving underestimates, given the dryness which "continues to pose a threat to winter wheat emergence" in the Black Sea and the US.

'Buying pace is unsustainable'

Meanwhile, soybean futures were set to rebound from "below-fair-value levels", given resilient demand, especially from importer.

"The current buying pace is unsustainable, and we expect prices to rise as further demand rationing is needed.

Factoring in a forecast for the US harvest of 2.86bn bushels, a little below the US Department of Agriculture number, "soybean supplies are likely to decline to critically low levels by the first quarter of 2013, as the current pace of demand draws down US stocks to record-low levels".

Indeed, once the US harvest is over, and with it the pressure on prices that this jump in supplies brings, "we expect to see further upward price momentum as US soybean supplies are significantly drawn down".