Macquarie, even as it cut its forecasts for corn prices, sounded a cautiously upbeat note on prospects for a recovery next season, seeing support from a switch by growers to alternative crops such as corn and soybeans.
Macquarie, revising price forecasts for major crops, joined the chorus downbeat on prospects for corn futures now, foreseeing a further fall in values this quarter to an average of $4.25 a bushel in Chicago, a level not seen for three years.
The onset in earnest of the US harvest "in the coming weeks will see corn prices break down even further - this year's record-large US production will be produced in a far more competitive world".
The bank's forecast factored in a crop of 352m tonnes, equivalent to just under under 14.0bn bushels, in line with a forecast from Informa Economics on Friday.
'Bullish 2014-15 season'
However, looking further ahead, the bank flagged the potential for "a little price support", given the impact of this year's falling values on prompting many farmers to turn their backs on corn.
"Current price levels will disincentivise production in the world's marginal regions, specifically Brazil," Macquarie said, flagging the likelihood for a switch by Brazilian growers to soybeans, while cutting sowings of safrinha corn planted on land vacated by the soybean harvest early in the calendar year.
Macquarie forecasts for corn prices and (change on last)
Q4 2013: $4.25 a bushel, (-$0.25 a bushel)
Q1 2014: $4.25 a bushel, (-$0.25 a bushel)
Q2 2014: $4.50 a bushel, (-$0.25 a bushel)
Q3 2014: $4.50 a bushel, (-$0.25 a bushel)
Q4 2014: $5.00 a bushel, (unchanged)
"We also anticipate a swing towards wheat and soybeans in the US," the bank said, adding that next year a "less-than-average [corn] yield would likely create a bullish 2014-15 season".
The bank forecast Chicago corn futures averaging $5.00 a bushel in the last quarter of next year, above the $4.85 ½ a bushel that the December 2014 contract was pricing in on Monday.
'Prices likely to correct'
Conversely, while Macquarie raised estimates for soybean and wheat futures over the next year, the upgrades were to levels generally below those futures are pricing in.
And it forecast further falls ahead, with wheat seen falling back to $6.00 a bushel in the second half of 2013 – more than $1 a bushel below the futures curve.
Macquarie forecasts for soybean prices and (change on last)
Q4 2013: $13.00 a bushel, (+$1.50 a bushel)
Q1 2014: $12.50 a bushel, (-$0.50 a bushel)
Q2 2014: $11.50 a bushel, (+$0.25 a bushel)
Q3 2014: $11.50 a bushel, (unchanged)
Q4 2014: $10.50 a bushel, (-$1/00 a bushel)
While Macquarie was one of the first to caution over the shortage in supplies of quality wheat, a trend becoming increasingly evident in markets thanks to crop damage in the likes of Argentina and Russia and strong demand from Brazil and China, "prices are likely to correct in the 2014-15 season".
"A combination of improved production and a retracement of trade demand will help see a surplus on the seaborne market once again," the bank said, if cautioning over "excessive precipitation" which has left Russia and Ukraine looking at sharp falls in autumn grain plantings for next year's harvest.
Competition in oilseeds
For soybeans, while there was a "potential risk to the upside" for prices, if South American planting delays continue, futures looked set for a "correction" assuming strong demand potential is fulfilled.
"We would expect to see a record planted area of soybeans. This should hopefully be followed by record production," the bank said, raising doubts on demand too.
Macquarie forecasts for wheat prices and (change on last)
Q4 2013: $6.00 a bushel, (+$0.25 a bushel)
Q1 2014: $6.25 a bushel, (+$0.25 a bushel)
Q2 2014: $6.25 a bushel, (unchangedl)
Q3 2014: $6.00 a bushel, (unchanged)
Q4 2014: $6.00 a bushel, (unchanged)
"We don't believe [Chinese buyers] will require the 69m tonnes the US Department of Agriculture forecasts for them to purchase, especially under the new higher-priced environment.
"We would also expect to see weaker demand from Europe, as greater domestic production of sunseeds and rapeseed will see these commodities gain market share."
'Demand could surprise negatively'
This weakness looks set to spill over into the palm oil market too, with a "broad recovery across all major oilseeds to once again result in inventory build-up, which could depress palm oil prices yet again".
"Palm oil demand could surprise negatively – a strong recovery in rapeseed and sunseed might limit demand" in 2013-14.
The bank forecast palm oil prices stage some recovery in the first quarter of 2014, to average 2,517 ringgit a tonne in Kuala Lumpur, before falling back to 2,241 ringgit a tonne in the April-to-June period.