The rally in soybean prices, which have retreated since topping $15 a bushel for the first time since 2008, is not over yet, with futures set to hit a record as further Argentine harvest downgrades feed through.

Rabobank raised to $14.75 a bushel, from $14.00 a bushel, its forecast for average soybean prices in Chicago during the April-to-June quarter, with upgrades too for values for the rest of 2012.

And the quarterly average figure may disguise a rise above the record $16.63 a bushel, for a front futures contracts, set in July 2008, given the need to ration supplies following a disappointing South American soybean harvest.

There is "now an increased risk that the previous record high may be reached or even surpassed given increasingly bullish fundamentals," the bank, a major agricultural lender, said.

More Argentina downgrades to come?

Indeed, production losses in South America, the only other major source of soybean exports outside the US, are "now on track to be more severe than in the 2008-09 marketing year," which triggered a sharp rebound in prices in the second quarter of 2009 from an early-low amid the world economic crisis.

Rabobank cut its estimate for the Argentine soybean harvest, hurt by frost last week on top of drought earlier in the season, by 2m tonnes to 43m tonnes, but said "this may still prove too high, as only 37% of the crop is harvested".

Informa Economics on Friday slashed its forecast for the crop by 5m tonnes to 40.0m tonnes, downgrades which followed reductions earlier in the week in estimates from Soybean and Corn Advisor, to 41.5m tonnes, and Oil World.

In 2009, when dryness was also behind a poor Argentine harvest, downgrades continued well into the calendar year, with the US Department of Agriculture cutting its own forecast for the crop by 7m tonnes between April and June.

"While current evidence does not suggest this type of additional downgrades yet, it is worth noting that a comparable reduction would equal a below-40m-tonne [Argentine] harvest," Rabobank said.

Growing risk to prices

Soybean prices also need to be kept elevated to encourage an increase in US soybean sowings, with at least an extra 1m acres of plantings needed, above the 73.9m acres that American growers originally intended to seed, according to a USDA report last month.

However, the bank acknowledged a potential risk to prices from the large net long position that speculators hold, which would dent prices if it were unwound, potentially for reasons unrelated to the agricultural commodity market.

"The risk of a broader 'risk-off' trade causing soybean prices to decline has increased significantly," Rabobank said.

Separately, Societe Generale highlighted as a potential price signal any return to buying by investors in exchange traded funds, who have been "noticeably absent" during the current rally.

"The timing of their re-entry could provide the catalyst for any changes in market dynamics," SocGen said, while forecasting that soybean futures will peak during the current quarter.

'Production risks have escalated'

Rabobank's comments came in a monthly update in which the bank trimmed its forecast for average New York raw sugar prices during the April-to-June period, by 1 cent to 22.0 cents a pound, but raised its estimate for Paris wheat futures by E20 to E195 a tonne.

"Production risks have escalated for the [European] 2012-13 crop. Paris wheat prices have avoided most of the losses seen in the Chicago market as dry European weather continued to dominate trading."

The bank was also more upbeat in cocoa futures further ahead, raising to $2,550 a tonne its estimate for average values in the October-to-December quarter, and predicting a further rise to $2,600 in the first three months of 2013.

"Demand growth is strong relatively to current price signals being sent to growers," and with the introduction of a fresh marketing authority in Ivory Coast, the top producer, also "a concern".

"The Ivory Coast forward selling scheme has increased the likelihood of supply disruptions and could result in lower quality beans in delays in shipments."