The International Grains Council clashed with Morgan Stanley in sticking by its forecast for the US corn harvest, despite hot and dry weather behind a late-August rally in futures prices.
The International Grains Council, flagging the prospect of a "steep recovery" in US corn production this year, stood by a forecast for the crop of 350m bushels (13.8bn bushels), a figure in line with a US Department of Agriculture estimate revealed three weeks ago.
Indeed, the IGC raised by 3m tonnes to 945m tonnes its forecast for the world crop, upgrading the Argentine crop by 2m tonnes, and raising hopes for Indonesian and Paraguayan output too.
The estimate for world carryout stocks was lifted by 2m tonnes to 150m tonnes, a jump of 24% year on year, with inventories held by exporters, particularly sensitive for price prospects, pegged at an "ample" 60m tonnes.
However, the IGC's resilient hopes for the US crop, the world's biggest, contrasted with a downgrade by Morgan Stanley of 125m bushels to 13.388m bushels (340m tonnes) in its forecast for the harvest, after attending last week's ProFarmer crop tour of the Midwest.
While the tour had come in with some strong yield forecasts, "these scout observations won't likely be fully realised, as drought stress pares back the size of the ears.
"Farmers we spoke with on the crop tour indicated that persistent heat would cause many of the kernels at the top of the corn ears to abort - lowering final yields," Morgan Stanley said, flagging a "continued threat" from poor weather.
The bank's forecast reflected a cut to 155.5 bushels per acre in the corn yield estimate, as well as a forecast that, considering data from the Farm Service Agency, harvested area will come in at 86.1m acres, below the USDA figure of 87.4m acres.
Separately, Macquarie too cut its forecast for corn yield, also to 155.5 bushels per acre, citing dry weather, while Lanworth on Thursday lowered its estimate to 152.4 bushels per acre.
Corn vs soybeans
Morgan Stanley also cut its forecast for soybean yields, to 42.1 bushels per acre, with Macquarie lowering its figure to 42.2 bushels per acre, and Lanworth coming in with a 40.8 bushels-per-acre forecast.
"Without moisture in the next three weeks, soybeans will not be able to fill their pods adequately, leading to small beans and lower yields," the bank said.
Nonetheless, it said that corn prices appeared to have better scope for gains from current levels than soybeans, given the relative underperformance in prices of the grain, with elevated soybean prices having already closed the arbitrage on Chinese imports.
Furthermore, hedge funds have a large net short in corn, unlike in soybeans, leaving the grain more vulnerable to upward price pressure as short holdings are closed.
"To be clear, we still see the risks to both corn and soybean prices skewed to the upside.
"We simply see the risk-reward in corn as slightly more favourable in the near term," the bank said, advising investors to close a trade it had recommended on a rising soybean: corn price ratio.
The bank's forecasts factor in a recovery in corn stocks at the close of 2013-14 to 1.28bn bushels, well short of the USDA estimate of 1.84bn bushels.
Soybean stocks are seen ending 2013-14 at 160m bushels, compared with a USDA forecast of 220m bushels.