Deutsche Bank cautioned of market "scepticism", while Goldman Sachs warned that a revival in prices may not last long, as commentators reacted to surprise cuts by farm officials to forecasts for US corn and soybean yields.
The US Department of Agriculture astonished investors by cutting its forecast for the domestic soybean yield this year by more than they had expected and, in particular, by downgrading its estimate of the corn yield by 1.9 bushels per acre to 154.4 bushels per acre.
Many commentators have been lifting their forecasts for the corn yield, with both Deutsche and Goldman upgrading their estimates above 160 bushels per acre within the last week.
Corn price support – for now
Goldman Sachs analyst Damien Courvalin acknowledged that the USDA downgrades "will likely support soybean and corn prices near term", particularly in coming at a time when hedge funds have already ramped up short bets on both crops.
As of a week ago, hedge funds held a record net short position in Chicago corn futures and options – meaning short bets, which profit when prices fall, outnumbered long positions, which benefit when prices gain.
On soybeans, they had cut their net long position below 44,000 contracts, the lowest in 18 months.
However, the bank stood by a corn yield forecast upgraded last week to 161 bushels per acre, and noted that even current USDA assumptions still mean "a large recovery in US and global 2013-14 inventories, with our price modelling still pointing to lower prices.
"We continue to forecast lower corn and soybean prices."
'Yield will be revised up'
Deutsche Bank, which on Monday cut its forecast for Chicago corn prices by $0.40 a bushel to $4.20 a bushel for the last quarter of 2013, also stood by its corn yield forecast, of 160.8 bushels per acre.
"The crop potential is strong and we believe that the corn yield will be revised up in subsequent reports, particularly in Indiana, Nebraska, Illinois and South Dakota," Deutsche Bank strategist Christina McGlone said.
"For perspective, we estimate the corn market is incorporating a stocks-to-use ratio of about 15.5%, compared with the USDA's 14.5%, so we believe there is scepticism with respect to the USDA's yield estimate".
Indeed, with soybean prospects "a lot more uncertain", with delayed sowings and development making them vulnerable should the Midwest receive an early frost, there was the potential for further gains in soybean values compared with US ones.
"It is possible to see a dislocation in soybean and corn prices this fall," Ms McGlone said.
Ideas of scepticism over the USDA corn yield estimate were echoed by other commentators too, including Richard Feltes at RJ O'Brien, who said that "the trade will be more willing to embrace conservative US soy yield forecast than a cut in the 2013 US corn yield.
"The correlation between cool Augusts and an above-trend corn yield is strong."
Furthermore, in six out of the last 10 times that the USDA has lowered its corn yield forecast in an August Wasde report, the figure has turned out below the final estimate.
At Country Futures, Darrell Holaday said that "the sentiment within the industry" is that the USDA's 154-bushels per acre corn yield figure "will be lowest number of the crop year estimates".
He added: "The USDA was very conservative on the yields in the south and Delta."