Macquarie called time on the spate of broker upgrades to US corn crop forecasts, cautioning over dryness and frost risks, in a report warning that prices of soybeans are on a "more critical knife edge".
The bank warned that a Midwest tour had left it "more concerned for the outlook of US production of corn and soybeans than before the trip started", highlighting dryness in the top producing state of Iowa, besides cool weather which has further slowed crop development after a rain-delayed sowing season.
"Whilst cooler-than-normal conditions are certainly preferable to the extreme heat that was seen last season, it isn't all positive," Macquarie analyst Chris Gadd said.
"These cool conditions in conjunction with a late planting and growth cycle are simply pushing the maturity of the crop out towards the first freeze date."
"It is highly likely that some regions of the Corn Belt suffer some form of adverse effect from a frost this season."
In Minnesota, where "large scale prevent plant was evident", farmers in most areas looked set for a drop in yields of 10-25% below last year's drought-affected figure.
Macquarie trimmed by 1.9 bushels per acre to 155.9 bushels per acre its forecast for the US corn yield, a downgrades which, while relatively small, represents a departure from much recent broker thinking.
Deutsche Bank and Goldman Sachs, for instance, which earlier this month upgraded yield estimates above 160 bushels per acre, have stood by these forecasts, even after the US Department of Agriculture last week lowered its own estimate to 154.4 bushels per acre.
Nonetheless, Macquarie remained downbeat on price prospects, saying that it remained "bearish" "as the expected supply rebound should still be sufficient to see a large build in inventory given the weak demand outlook".
"There is still plenty of scope to lose yield from the US crop and still finish with a very large carryover."
However, for soybeans - for which Macquarie cut US yield estimate by 0.5 bushels per acre to 42.5 bushels per acre, 0.1 bushels per acre below the USDA figure – the bank cautioned of a greater risk to its downbeat stance to price prospects.
"From current price levels soybeans are likely still bearish, but until we start to see more data points on production, uncertainty will likely breed greater volatility in prices," Mr Gadd said.
"Unlike for corn we believe the outlook for soy prices is on a more critical knife edge at the present, as if yields slip from current estimates the world would have to begin to ration demand once again."
'Unseasonably cool temperatures'
The comments came as USDA data showed the condition of US row crops declining in the week to Sunday, with the proportion of corn rated "good" or "excellent" falling three points to 61%, and of soybeans by two points to 62%.
Crops in Missouri showed particular decline, down 5 points to 48% good or excellent in soybeans and 10 points to 47% for corn.
USDA scouts noted "unseasonably cool temperatures continue across the state for the fourth straight week" and "crop losses along the Gasconade River" thanks to flooding.
Much-watched Iowa data showed declines, but only of one point for both crops, to 48% good or excellent in corn and 47% in soybeans, despite further undue dryness, with weekly average rainfall of 0.44 inches, less than half typical precipitation.
"This was the sixth week of the past seven to bring less than normal rainfall," official state climatologist Harry Hillaker said.
Crop tour results
Furthermore, chances of further crop deterioration, albeit from relatively high levels, look significant, given forecasts for drier and hotter weather.
"The weather forecast is for most of the Midwestern states to experience net drying conditions for at least the next week to ten days," Paul Georgy, president at broker Allendale, said
"A majority of the area will continue to see favourable crop development, but the lack of rain combined with warm to hot temperatures will accelerate the drying rate for many areas and could lead to some production concern."
Crop tour results
Investors are also watching results of the Pro Farmer crop tour of the Midwest for a further insight into US yield prospects, with the first day bringing strong results.
The tour pegged the South Dakota corn yield at 161.75 bushels per acre, up from an average of 119.65 bushels per acre, and a 2012 finding of 74.26 bushels per acre.
The Ohio yield was pegged at 171.6 bushels per acre, above an average of 144.1 bushels per acre, and last year's 110.5 bushels per acre.
For soybeans, the tour found an average South Dakota pod count of 1,016.7 per plot (3 feet x 3 feet), nearly twice last year's figure (584.9) and above the three-year average of 984.6 pods per plot.
In Ohio, the pod count, at 1,283.6 pods per plot, was ahead of a 2012 figure of 1,033.7 pods per plot, and an average of 1,162 pods per plot.