Agricultural commodities offer by far the worst prospects
for returns in a raw materials sector which itself looks a poor rival – for now
- to the potential offered by shares, Goldman Sachs said.
The investment bank, highlighting this year's significant
outperformance of shares over commodities after a decade close correlation,
termed this divergence a "return to a more normal state of affairs", in which assets
were more prone to idiosyncratic price drivers.
And shares were likely to continue outpacing commodities for
now, with history suggesting that in periods of below-par economic growth, "equities
typically outperform generally lacklustre commodity returns.
"It was the behaviour of commodity returns during the
previous business cycle that was the anomaly, not today," Goldman said.
Commodities could regain some ground over equities, but only
when central banks reversed policies of ultra-easy monetary policy, signalling more
secure economic growth, or inflationary risks – either positive for raw
"Weak developed market real economic growth is keeping quantitative
easing firmly in place, supporting equity valuations through low interest rates
as well as contributing to equity inflows searching for dividend yields,"
"Commodity demand and returns will remain lacklustre until
real global demand improves."
Bearish on ags
Goldman maintained a "neutral" rating on commodities,
forecasting a positive return of 1.6% over the next year.
However, that forecast masked divergent expectations for
different commodity sectors, with gains of 5.0% expected for energy and
industrial metals, but a slump of 13.0% in agriculture, and of 4.0% in
The bank said that its "bearish" view on agriculture was "being
driven by the increasing likelihood of a significant rebound in inventories on
the combination of a realised record large Latin American harvest, as well as
prospects for record-large US production under normal weather conditions this
"While weather remains key to this outlook, with a large
increase in US planting required in coming weeks for this base case scenario to
play out, it is important to emphasise that we believe the record large realised
South American harvest and the current weak level of global consumption
requires another major weather shock in the US to keep crop prices near their
'Not overtly bullish'
Goldman, which on Wednesday cut its expectations for New York raw sugar prices, forecast prices of many agricultural commodities falling
over the next 12 months, including corn, lean hogs, soybeans and wheat.
However, it foresaw some scope for headway in cocoa and live
cattle, and in raw sugar, for which it flagged potential price supports ahead, even
as it cautioned over the pressure on values from a strong cane crop in Brazil's
The downbeat stance on agriculture echoes that from Societe Generale
on Tuesday, in which it forecast price falls ahead for all major contracts bar Chicago
lean hogs, which it said look set to benefit from a seasonal uptick in meat
demand, and New York arabica coffee and cotton.
Even so, SocGen said it was "not overtly bullish at this
stage" on coffee, but said prices should fare better than those of the agriculture
sector as a while "until the true nature of any damage" from frost on Brazilian
plantations "can be assessed".
The bank said that it was "not overly bullish" on cotton
either, but flagged the potential for drought in Texas, the top US producing state,
and a switch by farmers to other crops "to provide support that most other
commodities in the sector do not enjoy".