Credit Suisse raised its forecast for grain and oilseed futures, but not by enough to alter a downbeat outlook for prices, thanks to the prospect of rich South American crops coming to the rescue of world supplies.

The bank raised its forecast for the average price of Chicago corn futures by $0.25 a bushel for the current quarter and by $0.50 a bushel for the first three months of 2013.

For soybeans, the estimates were raised by $1 a bushel for both quarters.

However, even including their upgrades, its forecasts were "below the forward curve and consensus estimates", especially for corn, for which March futures were on Friday trading some 10% above the Credit Suisse forecast for the first quarter of next year.

The comments tallied with a downbeat mood in Chicago on Friday, where grains lost some of the gains made in the last session on estimates in the US Department of Agriculture's monthly Wasde crop report. 

'Significant further price volatility'

The bank acknowledged that world stocks of corn were, when compared with use, "at the lowest level seen during the period for which we have comparable data, since 1960", excluding China, whose inventories are unavailable to world markets, and so often excluded from global supply calculations.

"This meant that slight changes to global supply and demand in the coming months will have a significantly larger effect on prices than they would in a less tight market – almost ensuring significant further price volatility," Credit Suisse said.

However, market focus "will now switch towards South American production", and the crops due for harvest early next year which - if a weak El Nino holds, bringing ample rains - should enjoy better-than-average yields.

'Prices to trend lower'

Indeed, US Department of Agriculture forecasts, restated on Thursday, of a 28.0m-tonne Argentine  corn crop and 70.0m-tonne Brazilian harvest may yet prove underestimates.

"However, the prospects of a better South American crop will likely mean prices will begin to trend lower in the next few months."

Similarly for soybeans, while US inventories are heading for historic lows,  Credit  Suisse said that "the focus will now shift towards South American production", and the prospect of bumper Argentine and Brazilian harvests.

"We expect prices to trend lower in the coming months as the initial shock of the US drought passes, and the realisation of a larger South American crop begins to feed into prices."

'Slightly more bullish'

The bank was more upbeat in its comments on prospects for wheat prices, in line with peers such as Goldman Sachs and Societe Generale, saying that "with so many key producing countries being affected by weather-related disruptions, prices will likely remain elevated as the world adjusts to smaller global supply".

"We are increasingly concerned by the outlook of smaller global production and exports in the coming year," Credit Suisse said.

"With global stocks falling once again, we believe the outlook for wheat prices may be slightly more bullish than other grains."

However, it added that it did "not see any strong catalyst for significantly higher prices", and while revising its forecast for wheat markets higher too, left estimates below the level futures are suggesting if, unlike in the row crops, "above consensus".