Goldman Sachs remained optimistic on prospects for corn and soybean futures despite cutting its prices forecasts for the main crops following the higher-than-expected US inventory data which sent markets tumbling.

The investment bank sounded a sour note for long-term corn prices, downgrading its estimate for futures in a year's time to $5.25 a bushel, a level not seen since November 2010.

However, most of the bank's estimates for corn and soybeans, even after downgrades of up to $0.55 a bushel, remained above levels the market is currently is factoring in.

"Following this [USDA] data release, we are raising our inventory forecasts and in turn lowering our crop price forecasts," Goldman said.

However, the estimates "remain above the current forward curves for both corn and soybeans".

'Upside risk'

The bank cited inventory estimates which remained "still low" despite the USDA revisions.

Indeed, the USDA in its key Wasde crop report on Thursday trimmed its forecast for US corn stocks at the close of 2011-12, but by 2m bushels, a fraction of the downgrade investors had expected.

Furthermore, the bank restated the threat from the dry weather in parts of South America, which has cut expectations, in particular, of Argentina's corn output.

"A recovery in South American precipitation in January and February would be required to push crop prices materially lower from current levels," Goldman said.

"In turn, we see upside risk to our forecasts should the La Niña weather conditions persist in South America as large cuts to local production would support US exports and crop prices, with soybeans likely to be most impacted."

Wheat the worst bet

Indeed, the bank retained forecasts that soybeans would, over the medium term, prove a better performer than corn, supported by renewed growth in Chinese imports and the prospect of losing out to the grain in the forthcoming US acreage battle.

"Even if weather conditions improve markedly in South America, we expect soybeans to outperform in 2012-13 on relative acreage loss to corn in the US next spring."

Wheat looked set to be the worst performer, with Goldman's forecasts for the grain's prices below what the market is factoring in – especially on the 12-month horizon, where the bank foresees a price of $5.75 a bushel, and Chicago investors see a price above $7 a bushel.

The return of wheat to its historic premium over corn "is likely to be deferred until at least next summer, and with disappointing supplies required to bring wheat prices back to trading above corn prices", the bank said.

"Although concerns for new-crop winter wheat production in Ukraine are rising, weather conditions in Russia and India have been reported to be very favourable to wheat.

"Further, today's US winter wheat seedings were well above expectations and last year's levels, pointing to potential strong US wheat production in 2012-13."

'Nothing fundamentally changed'

Other commentators have also cautioned that significantly higher corn prices look off the agenda for now following the USDA reports, which sent futures in the grain down the exchange limit in Chicago on Thursday.

At Country Futures, Darrell Holaday said the data had "taken $7.00-a-bushel corn out of play through the spring," as well as $13-a-bushel soybeans, with 2012 probably already having seen its highs until at least May.

"Near term, we feel March corn will test the $5.85-5.90-a-bushel area," he added, while forecasting "some commercial and world demand to surface below $6.00".

At Commonwealth Bank of Australia, Luke Mathews said that "the justification of $7.00-7.50-a-bushel corn seems to have evaporated.

"But we wouldn't go so far as saying the USDA reports were outright bearish for corn values. After all US corn inventories were reduced slightly month-on-month and are forecast at their second tightest level in history."