Goldman Sachs upped its wheat, corn and soybean forecasts for the next three, six and 12 months on the back of current and forecasted hot and dry weather conditions in the U.S. Midwest and tighter inventories, the bank said Monday.

But should weather conditions deteriorate further than already forecast, the bank said its forecasts would come under price risk. This is especially the case for corn as it completes its key pollination phase, Goldman added.

The U.S. bank raised its wheat forecast to $7.15 a bushel from $5.75/bu previously on the back of lower inventories and growing downside risks of lower production due to hot and dry weather in key producing regions such as Russia, Ukraine, China, India and Australia.

This will keep wheat prices trading at a sustainable premium to corn prices, the bank said.

Similarly it raised its corn forecast to $6.25/bu from $5.25 a bushel previously and lowered its 2012-13 U.S. corn ending stock forecast, but said it stills expect a modest build in U.S. corn inventories in 2012-13.

"Importantly, while the upside to corn prices remained capped in 2011-12 by the large U.S. and global wheat supplies, this is no longer the case as disappointing 2012-13 wheat production will likely limit corn-to-wheat substitution for both feed and exports going forward," the bank said.

It upped its soybeans forecast to $15.50/bu from $14.30/bu, citing a market deficit and a surplus U.S. corn balance which will lead the market to outperform corn.

MarketWatch