Soybeans and corn look a better bet for investors than wheat, thanks to Chinese shortfalls, VM Group has said in a note warning of a hangover to Brazilian farmers from the strong real.

The analysis group warned that wheat - which is trading at about $5.60 a bushel in Chicago, not far off five-month highs - looked set for a tumble given strong harvests that Australia is currently enjoying, and Europe looks set for in 2010.

"It's difficult to see wheat prices maintaining themselves much above $4 a bushel in coming weeks in this context," VM said in a report commissioned by BNP Paribas Fortis.

China factor

However, corn, which is trading near $4 a bushel, looked "more likely to maintain is price strength" thanks to a disappointing harvest in China, the world's second biggest producer and consumer of the grain after America.

"China is persistently failing to produce enough corn to meet consumption growth," the note said.

And while many investors are cautious over soybean prices, given South American harvests due to come onstream early next year, markets "should not be surprised that futures prices remain robust", VM said.

Soil conditions in Argentina, the third-ranked producer, remained too dry for soybean sowings, while China's imports remained robust, growing 13.2% in the first 10 months of the year.

"China is probably going to be in the market over the next 12 months in a big way, probably as much as during the 2008-09 season when it imported a record 41m tonnes," the group said.

Real problem 

The report added that while Brazilian farmers looked set for a record soybean harvest of 64m tonnes, this might not prove as lucrative for them as it might appear.

"A bigger problem for Brazilian soybean farmers than weather conditions into 2010 will be the strength of the Real, up by some 30% against the dollar this year," VM said.

"This will dent export earnings and squeeze Brazilian farmers' ability to pay for fertiliser inputs next year."

The observation echoes an alert from Commerzbank earlier this week about the strength of Brazil's currency, which the German bank said might hamper the country's soybean exports in 2009-10.