Rabobank upgraded soybean price forecasts, and stuck with ideas that corn futures will end the year well ahead of rates currently being factored in, citing South America crop downgrades and the dynamics of the forthcoming battle for acres.

The agricultural lender said it was, within the agricultural complex, "most bullish" on soybeans, and lifted futures price forecasts for both the current and the April-to-June quarters, citing the squeeze on supplies from worsened production prospects and Chinese imports which would exceed many forecasts.

Hot and dry weather and taken a far bigger toll on South American production than factored in by the US Department of Agriculture in its latest flagship Wasde crop report, which was overstating the harvest by nearly 5m tonnes.

Meanwhile, China's hunger imports had been underestimated, Rabobank said, noting "considerably" improved margins at crushing plants and the impact of an early lunar new year holiday in giving an artificially low reading on trade.

"After drawing down strategic reserves, and amidst hog herd rebuilding, we do not believe there is enough evidence to support anything less than a 4m-tonne year on year increase in Chinese soybeans imports."

Chicago vs Dalian

The potential for Chinese imports boded well for imports of corn from the US too, the bank said in a briefing, noting a premium of $3.13 a bushel on futures on the Dalian exchange over those in Chicago.

Furthermore, some estimates for US corn production this year looked optimistic, the bank said, forecasting the US yield at 156 bushels an acre, 8 bushels an acre below the USDA estimate, and estimating a lower number for corn sowings too, at 93.5m acres.

Besides the market "underestimates the cost burden of the more marginal [farmers]", who were looking at costs of up to $5.25 a bushel, a factor which "will be supportive of out bullish new crop forecast for Chicago corn prices".

'Bearish drag'

Corn prices will average $6.10 a bushel in the last quarter of the year, well above the $5.70 a bushel that Chicago's December contract is pricing in.

Rabobank forecast US wheat sowings for the 2012 harvest at 57m acres, 500,000 acres above the USDA estimate.

And some condition scares may have been overdone, signs of improvement in crops in the dry US southern Plains, and French and German crops set to reveal only "average" levels of damage from the cold snap earlier this month.

"High inventory levels from last season remain a bearish drag," the report added.

'Captive short-covering'

On soft commodities, Rabobank forecast a slower decline than previously expected in London robusta coffee, whose prices have soared this month, spurred by what is believed to be a large position taken out by one investors.

 "Captive short-covering" had "disconnected" futures from the pressure of a record Vietnamese crop, but this effect will wear off, leaving the market vulnerable to selling by producers.

Meanwhile, expectations for cocoa prices were trimmed "on indications that the West African crop may beat initial expectations".

A robust pace of farm deliveries of cocoa beans to ports suggest that "high prices have encouraged better husbandry and that the 2011 civil war as only had a modest impact on trees".