Investors are "overlooking risks" to wheat supplies which could spark price spikes, Macquarie cautioned, highlighting of the risk posed by any shortfalls in Argentine or Australian crops.
The bank acknowledged that supplies of milling wheat had beaten its previous expectations, particularly in the European Union, where the UK has added to ideas of a high quality harvest, as Agrimoney.com highlighted on Monday.
"But the theme of tight global quality wheat balance still holds," Macquarie analyst Chris Gadd said.
Indeed, while ideas for the quality of the EU harvest, and quantity of the Canadian crop had improved, the market faced deteriorating prospects for output from Argentina and Australia, the southern hemisphere's top producing countries.
Southern hemisphere prospects
Macquarie, pegging the Argentine wheat harvest at 10.5m tonnes, well below a US Department of Agriculture estimate of 12.0m tonnes, flagged the damage from a "bout of dryness" which could prompt further downgrades if it continues.
"A reduced Argentine crop would force Brazil and other nearby counties to turn more aggressively to US origin wheat supplies," the bank said.
In Australia, where official commodities bureau Abares itself cut its harvest forecast by 930,000 tonnes to 24.5m tonnes on Tuesday, Macquarie too cautioned of the prospect of further downgrades should rain not prove forthcoming in the east of the country.
"A smaller crop in Australia would really hamper their export programme, as domestic inventories already are very tight," the bank said, itself forecasting a 24.0m-tonne crop and exports of 18.0m tonnes – well below the Abares estimate of shipments of 19.5m tonnes.
The loss of Australian export power in particular represented "a major risk for the world", in that "prices would have to trade higher in order to ration demand".
"If we started to lose further production in Australia and Argentina, the 2013-14 balance sheet would likely drift towards being as tight as the supply and demand balance we saw in 2007-08," when prices of Chicago soft red winter wheat, the world benchmark, set a record high.
While currently upbeat on wheat prices in terms of relative value, compared with other crops, Mr Gadd said: "We fear that wheat could become a flat price bull story if we lose the southern hemisphere crops."
'Tightest in the world'
Supplies were particularly tight in the US, whose no-show in a series of high-profile Middle Eastern and North Africa tenders, and in particular orders by Egypt's Gasc grain authority of more than 2m tonnes in less than three months, was an irrelevance.
"At the present the US doesn't need this demand so has no reason to be competitive," Mr Gadd said, terming the US wheat balance sheet "the tightest in the world already".
"The marginal demand this season for the US is coming from both China and Brazil, where it remains competitive."
US wheat exports so far in 2013-14, in terms of shipments plus outstanding sales, have hit 15.8m tonnes, up 38% on those at the same period of last year, according to the US Department of Agriculture.
'Far more constructive for prices'
Supplies of soft red winter wheat itself look particularly at risk, after Chinese buyers and US livestock feeders exploited "very cheap" prices from June to August.
US soft red winter wheat stocks will fall to 83m bushels by the close of the season, down 27% year on year and representing a stocks-to-use ratio of 14%.
The stocks-to-use ratio, which in measuring the availability of a commodity is viewed as a key pricing metric, was 22% last season and 66% in 2009-10, up from 13% at the close of 2007-08.
Macquarie said it had become "far more constructive for price support" for hard red winter wheat, historically traded in Kansas, given a pick-up in demand from Brazil, whose own wheat crop has been damaged by frost.
The bank forecast a US stocks-to-use ratio for the variety at 13% at the close of 2013-14, below the 14% in 2007-08, and a recent high of 49% in 2009-10.