Soaring wheat prices, prompted by sharp cuts to production hopes, should not distract grain investors from the better fundamentals of corn, which represents the better long-term bet, Goldman Sachs has said.
The investment bank raised short-term price estimates for all three of Chicago's major crops, noting for soybeans continued strong demand from emerging market importers.
However, it highlighted corn's "constructive outlook", as ethanol plants ramp up demand at a time when the US crop is set for lower yields.
The bank has factored in an American corn yield of 158.8 bushels per acre, lower than the 163.5 bushels per acre figure that US officials are factoring in, but above the five-year average of 153.3 bushels per acre.
"We expect further tightening of the corn balances," the investment bank said.
"Accordingly, we believe corn price risk is skewed to the upside. Current corn prices are providing a compelling opportunity for consumers to layer in upside protection."
Narrower discount
The comments come amid a rally in particular in wheat prices which, lifted by a series of downgrades to crops in major producing countries, have risen by 23% this month, more than twice as fast as corn.
|
Goldman's revised grain price targets, (previous target)
12 months ahead: corn, $4.50 per bushel, ($4.50 per bushel); wheat, $5.75 per bushel, ($6.00 per bushel)
6 months ahead: corn, $4.50 per bushel, ($4.00 per bushel); wheat, $5.50 per bushel, ($5.50 per bushel)
3 months ahead: corn, $4.15 per bushel, ($3.75 per bushel); wheat, $5.20 per bushel, ($5.00 per bushel) |
However, rich stocks left over from previous harvests would begin to tell on the grain, leaving wheat prices lower on the three, six and 12-month outlook than futures markets are pricing in.
"Our forecasts remain slightly below the forward curve. We still expect the wheat market to remain amply supplied," Goldman said.
Corn, however, was set to rise to $4.50 a bushel by early 2011, "tightening" its discount to wheat.
The current spot contract, for September delivery, stood at $3.86 ¾ a bushel at 10:30 GMT, up 2.5 cents on the day.
'Most compelling'
The bank added that its forecast of soybean prices standing at $9.75 a bushel in three months time - $0.50 a bushel higher than its previous estimate if in line with the level futures are pricing in – reflected strong US exports and the prospect of lower production this year.
|
Goldman's revised soybean price targets, (previous target)
12 months ahead: $9.50 per bushel, ($9.50 per bushel)
6 months ahead: $9.50 per bushel, ($9.50 per bushel)
3 months ahead: $9.75 per bushel, ($9.25 per bushel) |
"Although we still expect US soybean inventories to recover in 2010-11… the recovery will be smaller than previously forecast," Goldman said.
Although another round of strong South American crops next year might weaken prices further ahead, long-term, "soybeans offer the most compelling drivers".
"Expected strong demand growth from emerging markets will likely leave the market particularly sensitive to negative supply shocks," Goldman said.
"We would therefore take advantage of weaknesses in soybean prices to position for future strength."
PRINTABLE VERSION
EMAIL TO A FRIEND
RSS FEEDS