Rabobank hiked forecasts for grain and oilseed prices, to above values markets are pricing in, saying "high and even record high" values need to be sustained to shrink demand to match drought-hit supplies.
The bank lifted by up to $1.50 per bushel its forecasts for quarterly average soybean futures prices in Chicago, cautioning that market rises to record highs had "not yet caused a severe decline in usage" required as the US faces up to a drought-hit harvest.
"The smaller crop size and pipeline carry-over will require the largest year-on-year drop in US soybean consumption on record," of more than 160m bushels, the bank said.
However, there has been "little evidence of a slowdown in global soybean consumption", with US use rising at an "alarming rate", as highlighted by industry data earlier this week on processing volumes last month, and Chinese demand "likely to be a key support to prices".
"Given that Chicago soybean prices have consistently treaded above $16 a bushel since the beginning of June and have not slowed Chinese demand, we expect that higher prices are needed."
Need for feed
The bank, one the world's main agricultural lenders, upgraded forecast for corn and wheat futures to show – unusually – continued price increases even into summer 2013.
The upgrades reflected ideas that rationing demand for corn "will prove difficult" given reasonably resilient production of ethanol - needed as an oxygenate additive to gasoline whether or not the US waives mandated levels of use – and the need to feed US livestock.
While US livestock numbers - as measured by grain-consuming animal units, a combined measure of cattle, hog and poultry populations - are set to fall only 1.4% this year, the US Department of Agriculture has pegged domestic feed demand tumbling 10.4% year on year.
Such a reduction in corn use for feed "will be much more difficult than commonly expected", given that pasture conditions are "the worst on record", with just 17% rated in good or excellent condition, according to official numbers.
Switch to wheat
Indeed, the hunger for feed will drive livestock farmers to use wheat in 2012-13 at levels far greater than the 220m bushels forecast by the US Department of Agriculture.
Rabobank, forecasting wheat feeding at 400m bushels, more than three times the 2011-12 rate, said: "Farmers will choose to feed wheat rather than reduce their herd in the short-term."
Many commentators believing livestock prices will rise further ahead as improved pasture conditions, and eventually a pullback in grain costs, encourage herd rebuilds.
Furthermore, the bank warned that wheat production estimates "have increasing downside", cautioning over the threat of dry weather to crops in Australia and India, and pegging Chinese production at 105m tonnes – 13m tonnes below the USDA estimate.
USDA foreign staff have flagged damage to China's crop from disease outbreaks, encouraged by poor weather and more concentrated planting patterns.
The bank forecast wheat prices averaging $9.20 a bushel in Chicago in the April-to-June period next year some $0.40 a bushel above the price that the May 2013 contract was trading at on Friday.
For Paris wheat, which set a record price of E295.50 a tonne in 2008,the bank foresaw values averaging E273 a tonne during the quarter.
May 2013 futures closed on Thursday at E228.00 a tonne.
Separately, RJ O'Brien vice-president Richard Feltes also cautioned that the USDA's estimate for wheat feeding may be too low, although by less of a margin that Rabobank believes.
"We could see 50m-70m bushels more wheat feeding than USDA August estimate," he said.