Goldman Sachs rated crop futures among the worst bets in
commodities for 2014, despite upgrading hopes for cocoa and corn futures,
although it was less downbeat on prospects for livestock prices.
The investment bank - while forecasting that commodity
prices overall, as measured by the S&P GCSI Enhanced Commodity Index would fall
by some 3.0% over the next 12 months said that the asset class still "strongly"
warranted a place in investors' portfolios.
"We believe the benefits of holding commodities in a
portfolio are still valid a hedge against hostile markets, a hedge against
inflation should it occur, and diversification," the bank said.
"Declining correlation with other financial assets and low volatility
in commodities during the current phase of the business cycle should be
expected and has always been a part of the strategic commodity story."
However, it forecast far better returns from energy and
industrial metals than from crop commodities, which it forecast falling 11%
over the next year, with only precious metals, with forecast fall of 15%,
expected to perform worse among raw materials.
The forecast came despite upgrades in expectations for Chicago
corn futures, which it lifted by $0.25 a bushel, and for New York cocoa prices,
which it pegged at $2,700 a tonne in three-month and 12-month horizons, $200 a
tonne higher than the previous forecast.
The cocoa revision reflected expectations for a global cocoa
production deficit of 70,000 tonnes this season, following a 160,000-tonne
shortfall in 2012-13.
But the forecast for cocoa prices as well as for corn prices,
reported elsewhere on Agrimoney.com remained below the futures curve.
Goldman cited "better-than-expected production results in
West Africa so far for the main-crop harvest as well as favourable weather
conditions for the subsequent mid-crop harvest".
Furthermore, while the bank's economists "forecast support
growing developed-market cocoa demand in 2014, we see risk that emerging market
demand growth disappoints on further currency depreciation pressures for economies
with large current account deficits".
And the bank cut its outlooks for Chicago wheat prices, and for
New York sugar prices which it forecast at 16.5 cents a pound in a three-month
Goldman cited a "large surplus in the 2013-14 marketing
year, for the fourth consecutive year, and benign weather conditions recently
in major producing regions".
The bank was more upbeat on expectations for livestock
futures, which it forecast falling a more gentle 3.0% over the next year.
The forecast for lean hog futures was hiked by 12 cents to
100 cents a pound, reflecting the smaller-than-expected US breeding herd
revealed in the latest US Department of Agriculture hogs and pigs report, and
the threat of porcine epidemic diarrhea virus (PEDv) to expansion plans.
"While high farrowing intentions on strong forward margins
point to a higher hog supplies in 2014, such expansion will be constrained by
the smaller breeding herd and contingent on the impact of PEV on pigs per
The estimates for live cattle prices were also raised, by 6
cents to 138 cents a pound on the three-month horizon, reflecting expectations
for a continued pressure on the size of the herd in US feedlots.
The rebuilding of the US cattle herd, meaning heifers being
kept for breeding rather than placed on feed, lower calf imports from Mexico
and the prospect of "strong" beef exports mean live cattle supplies "will
decline strongly in 2014".