Banks queued to caution over a decline corn prices, even as futures fell to their lowest in nearly a month, weakened by expectations that a major report later on Friday will point to supplies being less tight than had been thought.

Corn prices, as measured by Chicago's benchmark March futures contract, have fallen some $0.25 a bushel this week, undermined by forecasts that the US Department of Agriculture will, in its monthly Wasde report, lift its estimates for domestic stocks of the grain at the close of 2012-13.

One broker, McKeany-Flavell, forecasts the Wasde, a closely-watched report, will reveal an upgrade as high as 95m bushels for the corn stocks estimate.

The squeeze on US corn supplies, stemming from a drought-hit harvest last year, is believed by many commentators to have been eased by the impact of high prices in stalling exports, and more recently the use of the grain for making ethanol.

'Bullish thesis'

However, Macquarie, forecasting a "neutral" Wasde for corn, said that futures were approaching a "fundamentally bullish story" which would unfold in the second quarter of the year, as demand from ethanol plants revives.

"Once ethanol stocks have become depleted, we would expect it to become the price leader of corn," with a rationing point which currently relates to a futures price of nearly $9.00 a bushel.

In the livestock sector, demand from poultry and hog producers was also "proving resilient", Mr Gadd said, adding that "the strength of US feed demand for corn is one of the rationales of our bullish thesis for the commodity".

'Buying opportunity'

Separately, Rabobank said that the pullback in corn contracts covering the 2012 harvest "offers a buying opportunity", saying that feed demand "appears to be running at a pace well above the level needed to reach the USDA's forecast".

While the beef sector was showing signs of contracting in response to corn prices which remain elevated by historical levels, numbers were expanding at dairy, poultry and pork enterprises, which between them account for 73% of America's so-called animal units.

"Even if margins were to fall, end users may choose to endure losses in the near-term in expectation of lower feed costs once the 2013-14 harvest comes online," the bank said, forecasting a rebound of one-third in US corn production.

"Strong US corn feed demand will result in [December-to-February] demand will above the pace needed to reach the USDA's forecast, and prove bullish to Chicago corn prices."

'Classic correction'

Australia & New Zealand Bank cited technical reasons for a "buy" recommendation on corn, saying that the retreat in Chicago's July contract to some $6.75 a bushel last month had completed a "classic correction" giving back 50% of last year's rally.

The contract stood at $7.01 a bushel on Friday.

"Projections suggest gains through last year's $8.24-a-bushel high to at least $8.58-8.60, if not a full move to $8.70-9.72 a bushel into mid-2013."

'Vulnerable to selling pressure'

The comments contrast with a more gloomy outlook from Chicago broker RJ O'Brien, which cautioned that "while the marked decline in March corn futures this week suggests that a potentially bearish Feb crop report for corn is fully discounted", there were reasons to expect a further decline.

"We would note that charts are turning over, that current prices for December corn futures reflect an unusually low 2013 US corn yield [expectation], and that new corn longs, evidenced by the 100,000-contract gain in open interest since January 1, are vulnerable to further selling pressure."

At Iowa-based US Commodities, Don Roose, the broker's president, said that the influence of this Wasde may be overshadowed by the latest forecasts for weather in South American, where dryness is eroding hopes for Argentine crops.

"This does not look like being a big report, as far as Wasdes go," he told Agrimoney.com.

"We will probably pretty quickly move on to trading the South American weather outlook."

'As bad as the Russians'

At Chicago-based Rice Dairy, feed grains analyst Jerry Gidel cautioned against expecting the Wasde to factor in a reduced estimate for ethanol production, without further evidence of reduced demand.

The USDA's biggest quandary may be in soybeans, and how to tackle supply estimates given the unexpectedly strong exports, which have topped 1.0bn bushels – nearly 75% of the total expected for the whole of 2012-13 – just five months into the marketing year.

"We may not have enough bushels left for ourselves," he told Agrimoney.com.

"We may have got as bad as the Russians, and have to buy some back because we have sold too much."