Macquarie hiked grain price forecasts, predicting that corn and soybean futures will yet set fresh records, as it forecast the need for "higher prices throughout 2012-13" to curtail demand to match drought-hit harvests.
The bank cautioned that the US Department of Agriculture estimate for the domestic corn harvest is still too high, by 10m tonnes, warning of high levels of abandonment forced by drought in the latest of a series of downbeat estimates from commentators.
On soybeans, the USDA, which unveils its latest crop forecasts on Wednesday, is closer to the mark, Macquarie said, also in line with market thinking, after rains arrived in time to refresh many crops.
However, the market's focus had now switched more to the "demand rationing side", on which prices had further work to do to make dwindled supplies last, Macquarie analyst Chris Gadd said.
'Rationing job to finish'
For corn futures, after an autumn dip prompted by harvest pressure and switching to other grains, prices will return above $8 a bushel in 2013, averaging $8.75 a bushel in the July-to-September quarter as "markets finish off the rationing and substitution job", Mr Gadd said.
"And that is an average price for the quarter. We expect prices to go much higher than that," he told Agrimoney.com.
This week's US corn crop estimates
Allendale survey - yield, 118.2 bushels per acre; production, 10.326bn bushels
FCStone - yield, 121.4 bushels per acre; production, 10.607bn bushels
Linn Group - yield, 119.9 bushels per acre; production, 9.954bn bushels
Macquarie - yield, "in line with USDA"; production, 10.374bn bushels
RJ O'Brien - yield, 120.3 bushels per acre
USDA: yield, 123.4 bushels per acre; production, 10.779bn bushels
The current record for Chicago corn futures is $8.43 ¾ a bushel for a spot contract, set a month ago, with forward lots pricing in a far weaker outlook that Macquarie has portrayed.
Chicago's July 2013 contract stood at $7.81 ¾ a bushel in morning deals, with the September 2013 contract at $6.83 ¾ a bushel.
A late-2012-13 jump in corn prices will be needed to curtail demand from biofuel plants, given that "ethanol will have destocked by this point", Mr Gadd said, meaning that "this portion to demand will become more difficult to ration".
'By far the most bullish'
However, he was most bullish over soybeans, for which he hiked forecasts for Chicago spot futures prices in the first quarter of 2012 to $19.00 a bushel, well above Tuesday's record of $17.94 ¾ a bushel, and the futures curve.
Investors are pricing in values of $17.41 ½ a bushel for January futures, and $16.86 a bushel for the March 2013 contract.
This week's US soy crop estimates
Allendale survey - yield, 34.9 bushels per acre; production, 2.602bn bushels
FCStone - yield, 36.7 bushels per acre; production, 2.739bn bushels
Linn Group - yield, 35.9 bushels per acre; production, 2.667bn bushels
Macquarie - yield, N/A; production, 2.65bn bushels
RJ O'Brien - yield, 35.6 bushels per acre
USDA: yield, 36.1 bushels per acre; production, 2.692bn bushels
Soybeans were "by far the most bullish" of Chicago's big three crops, given a need for rationing which was "far more material" for the oilseed, given not only drought-hit production in North and South America, but a disappointing world rapeseed crop too.
"Soybeans have no easy way out through substitution with alternative oilseeds," Mr Gadd said.
'Getting tighter, rather than looser'
Soybean prices had "done a pretty poor job to date" of rationing demand, with crush margins "relatively strong" in the US, and "improving" in China.
Markets are "going the wrong way about rationing", he said, warning that "balances are getting tighter rather than looser".
And the oilseed looked set to prove "way more bullish" heading into 2013-14 too, given the extent of inventory replenishment required – a fact that looks set to win the oilseed acres from both corn and cotton in the US spring planting season.
Soybean futures will average $17.50 a bushel next summer, well above values below $16 a bushel markets are pricing in.
Chicago vs Paris wheat
For Chicago wheat investors, the bank foresaw some upside too, although values, forecast at $9.25 a bushel for the first half of next year, are closer to the futures curve.
"Wheat prices have outperformed their fundamentals," Mr Gadd said.
Macquarie price forecasts
Q4 2012 - corn, $7.50 a bushel; soybeans, $18.50 a bushel; wheat $8.50 a bushel
Q1 2013 - corn, $7.75 a bushel; soybeans, $19.00 a bushel; wheat $9.25 a bushel
Q2 2013 - corn, $8.50 a bushel; soybeans, $17.50 a bushel; wheat $9.25 a bushel
Q3 2012 - corn, $8.75 a bushel; soybeans, $17.50 a bushel; wheat $9.25 a bushel
Data: quarter average, Chicago front contract
Indeed, prospects looked better for European, and Russian, prices than those in the US, given the "poor crops" in both regions, limiting their supplies for export.
"They cannot supply all the needs of North African importers," traditional buyers from the regions, as well as domestic demands.
"We will have to see European and former Soviet Union wheat priced out of these markets.