Societe Generale sounded a contrarian note on crop values by foreseeing sharp falls ahead, saying it was "bearish" on corn prices, and terming the soybean market "toppy".

The bank followed up a series of upbeat forecasts on crop prices, from the likes of Newedge and Macquarie, by foreseeing a return in corn prices to $6 a bushel, and soybean prices below $14 a bushel, within a year.

While SocGen's fresh estimates represented upgrades from its previous forecasts, they implied discounts of up to 20% on levels Chicago futures are currently pricing in.

Indeed, the bank recommended that commodity investors go underweight in agriculture and livestock futures, while giving extra impetus to bets on base and precious metals.

It also recommended a trade of shorting Chicago corn, hedged against a long position in wheat, in which it remained – relatively – upbeat, forecasting a boost to values from the depletion of Black Sea export supplies and from detrimental dryness as US farmers begin sowing winter grains.

'Bearish outlook'

SocGen analyst Christopher Narayanan said that, on corn, a position of being "bearish to the current forward curve" reflected concern at the extent of demand cuts that already seem to be occurring to match consumption to drought-depleted US supplies.

Margins for ethanol producers were "muted", just as the US summer driving season, the period of peak demand, is ending, while America's corn exports "continue to fall".

Official data on Monday showed US weekly corn exports for the week to September 6, the first period for the 2012-13 marketing year, at 9.76m bushels, well below the 25m bushels a week needed to meet the US Department of Agriculture forecast of 1.3bn bushels for the whole season.

Mr Narayanan also saw "significant rationing" in US feed demand, with chicken and hog producers cutting back in the face of negative margins prompted by high feed prices, and cattle ranchers stepping up slaughter of heifers, potential breeding animals.

"This not only will eventually decrease the supply of live cattle available to market in the medium term, but also decrease the amount of feed needed in the second half of the 2012-13 marketing year."

Buyers dig in their heels

For soybeans, he flagged a poor performance in prices which appeared more than might be expected alone from harvest pressure, when a spike in new supplies temporarily weighs on the market.

"We note that basis bids for both soybean meal and soybean exports have dropped steadily over the past several weeks, well ahead of the harvest, even as futures prices were grinding higher," Mr  Narayanan said.

"As cash prices are the summation of basis and futures prices, it appears that end-users have effectively capped the price they are willing to pay."

Soybean prices "appear to have become 'toppy' at these levels".

Corn vs wheat

For wheat, SocGen said that prices would likely follow those of corn in the near-term, linked by their position as alternatives in feed rations.

However, the exit of Black Sea suppliers from wheat exports will shift business "back to the European Union and US in the second half of the wheat June-to-May marketing year, likely towards the end of 2012 or early 2013.

"This, in turn, should decouple wheat prices from corn, and wheat should push higher independently."

Furthermore, while "recent rains, particularly from Isaac, helped mitigate the impact, US winter wheat plantings remain at risk from the effects of drought", the bank said.