Corn futures are on their way up despite economic fears stoked by the eurozone crisis, Goldman Sachs said, upgrading price forecasts – while cutting hopes for soybeans.

The investment bank raised by $0.70 a bushel to $6.85 a bushel its forecast for corn prices in three months' time, ditching a forecast that corn prices were on for a decline.

The upgrade followed the US Department of Agriculture's latest benchmark Wasde crop report, which Goldman said while looking fair on domestic corn production, may have underestimated demand.

Corn buyers should exploit any pullback in Chicago futures, which lost a further 1% on Thursday, to "layer in hedges" in expectation of higher prices.

'Margins remain positive'

The bank estimated US feed use of the grain at 4.675m bushels in 2011-12, 75m bushels more than the USDA's estimate downgrade in the Wasde, a cut which many analysts questioned.

"Cattle and hog margins remain positive at current corn prices, pointing to near-term strength in feed demand," the bank said.

And it was 25m bushels more optimistic on ethanol consumption, noting a rush by exporters and blenders for the biofuel before tax perks expire at the close of the year.

And even a worsening in the eurozone crisis may not throw the price forecasts off course, with current prices "generating strong US demand", and cheaper ones potentially enhancing it.

"Ongoing fears of another economic recession on the back of European financial stress creates risks that corn prices remain below levels needed to limit demand growth, drawing down already low corn inventories," Goldman said.

'Stronger wheat feeding' 

The bank also lifted forecasts for prices of wheat, which, despite ample supplies, looked set to gain a lift from corn – although not enough yet to close its discount to its fellow grain.

"Stronger wheat feed demand in coming quarters could bring wheat prices back to trading at parity with corn prices by next summer."

However, Goldman cut hopes for soybeans prices, by $0.40 to $12.20 a bushel on a three-month horizon and by more for more distant timescales, citing "improving prospects" in South America, where Brazilian sowings especially have got off to a rapid start.

"We still expect that soybean prices will outperform corn prices over the next 12 months.

"However, improving weather conditions in South America will likely defer this move into the 2012-13 crop year and limit its magnitude."