A 26% slump in corn output in drought-hit Mexico, coupled with a return by China to imports, could foster a recovery in the prices of the grain next year, Rabobank has said.

Mexico's worst drought in 68 years will cut its corn harvest to 18.5m tonnes this year, down from 25.0m tonnes in 2008-09 and well below some other forecasts, the Dutch bank said.

The US Department of Agriculture is forecasting a Mexican corn crop of 22.5m tonnes in 2009-10.

The decline in production will prompt a "significant increase in Mexico's import needs", with foreign purchases potentially hitting a record 13.9m tonnes – 4.9m tonnes above the USDA forecast.

"Given favourable trade relations, price differentials and the relative abundance of US supplies, US exports should make up the majority of this shortfall," Rabobank said, edging its forecast for corn prices in the second quarter of next year higher to $4.0 a bushel.

"There is potential for US exports to exceed current expectations."

'Battle for acreage'

The price would also be supported by the potential return of China to importing corn, if its harvest proves nearer the 145.9m tonnes that private analysis company JC Intelligence has forecast than the 166m-tonne official estimate reaffirmed by the country's farm minister, Sun Zhengcai, on Monday.

"China may look to import corn over the current marketing year."

Furthermore, corn plantings look likely to decrease in many countries, notably Argentina and Brazil, because of the better returns apparently offered by soybeans.

"The corn market will see some recovery into the first half of 2010 with the battle for acreage between corn and soybeans likely to result in an appreciation of price," Rabobank said.