Agriculture markets have some "bloodletting to come", Macquarie said, citing poor prospects for fertilizer, rubber and soybean prices – but placing a "bullish" rating on corn futures even as they came close to rebounding to $4.00 a bushel.
The bank said that many agricultural commodity markets had yet to work their way through weakened fundamentals blamed largely on downbeat prospects for emerging markets.
Besides reducing demand from developing countries for imported crops, the depreciation in these nations' currencies has, in boosting export competitiveness, "led to a conspicuous increase in supplies for many commodities".
"In order for markets to balance, prices will need to fall to levels that invoke supply cuts," Macquarie said.
While this had occurred to some degree in markets such as cattle and dairy, "in many other markets there is still some bloodletting to come".
This would occur "either through more meaningful reductions in prices, or a prolonged period of subdued pricing, as we are seeing now".
The bank highlighted "bearish expectations" for soybean prices, citing a switch by many growers, in the face of low ag prices, to sowing a crop which is relatively cheap to grow having, for instance, much reduced fertilizer needs to corn.
"Record [soybean] production in South America is being achieved and large crops are also being harvested in the US.
"Stocks are now quite high," the bank said, noting also the "additional risks" to prices emerging from ideas of waning demand from China, the top importer of the oilseed.
Further ahead, "large inventories and high levels of production will continue to weigh on soybean prices", Macquarie said, seeing price prospects remain soft over the next 12 months.
The bank also forecast a further decline in natural rubber prices, seeing Singapore futures, which on Wednesday stood at 125.00 cents a kilogramme, falling to average 105 cents a kilogramme by the end of 2016, a price not seen since late 2008.
"There is still some distance to fall before [prices] hit the bottom," Macquarie said in a report.
It cited the apparent collapse of attempts by exporters in Thailand and Indonesia to limit output, and a "shock" increase in Malaysian production, besides the fall in global car sales, undermined by weaker Chinese economic prospects.
Among fertilizers, the bank said that the "worst is yet to come" for potash prices, seeing values average $240 a tonne in the Vancouver export market by the April-to-June quarter next year, down from $302 a tonne in the nearly-finished July-to-September period.
"Given the poor financial position of farmers globally, as well as falling spot prices in major destination markets… we believe purchasing activity in the potash market will remain muted," the report said, estimating world demand down by 5.8% this year and by 7.6% in 2016.
The bank also flagged uncertainty of the Chinese contract system, with ideas that the country, the top importer, may move to ad hoc purchases rather than signing contracts with the major potash producers, including North American cartel Canpotex.
Nitrogen prices will also remained undermined by Chinese urea exports, the competitiveness of which will be improved by falling prices of coal, a major raw material.
However, Macquarie was upbeat on cattle prices, seeing an "anomaly" in the market, and on corn too, placing a "bullish" rating on corn on a three-month timescale even as futures on Wednesday came within an ace of regaining the $4.00-a-bushel mark for the first time since July.
The bank cited "strong" demand for the grain at a time when output has been undermined by weaker sowings in major producing countries.
Corn production is "set to decline in the current season, given losses in North and South American planted areas, and yield underperformance compared to last season", Macquarie said.
And it forecast continued strength in values over the next two years, as elevated inventories carried over from 2014-15 are eroded.
"The balance sheet will tighten incrementally as we move into 2016, providing support to prices," the bank said.
The comments came as Chicago corn futures for December in early deals on Wednesday touched $3.99 ¾ a bushel, the highest for a spot contract since late July.
On wheat, Macquarie forecast a "neutral" market in the short-term, but better price prospects heading into next year, supported by rival grain corn.
"As corn prices rise throughout 2016, wheat prices should find some support too."
By Mike Verdin