Banks offered support to grain and oilseed bulls, despite
the negative reaction to the latest US crop estimates, with Goldman Sachs saying it
remained upbeat on prices, and Bank of America Merrill Lynch revealing it was "positive"
on prospects for wheat futures.
Goldman Sachs - while acknowledging that a US Department of
Agriculture upgrade on Tuesday to the estimate for domestic wheat stocks was "bearish"
- said that "key uncertainties remain" in crop balance sheets.
These included the potential for a USDA downgrade to the
rain-hit Argentine wheat harvest, which the department pegged at 11.5m tonnes,
compared with some industry forecasts below 10m tonnes, with figures for corn
production in Ukraine and the US also open to downgrades.
"The combination of downside risks to crop production and signs
of resilient demand will require higher crop prices in coming months given
already-very-low inventories, especially for corn," Goldman analyst Damian
"The upside to soybean prices is potentially larger than for
corn but would require further deterioration in South American weather."
Goldman Sachs last week recommended a long bet on corn futures,
in a basket with crude oil, and with copper hedged against a short position in aluminium.
'Could be severely damaged'
Meanwhile, BofA Merrill Lynch, outlining forecasts for 2013,
on Wednesday named wheat, with the likes of copper, gasoline and gold, among
commodities on which it was "positive" on price prospects, cautioning investors
to "prepare for disappointing wheat harvests in 2013".
"May to October was the driest six months in over 100 years
in Kansas, Oklahoma and Nebraska," the bank said.
"Already 26% of US winter wheat is in poor to very poor
condition in 18 key producing states,
"Unless US weather turns unusually favourable in winter and
spring, next year's winter wheat crop could be severely damaged, likely
providing support to prices."
And while the USDA on Tuesday cut its hopes for US wheat
exports in 2012-13, the reason behind an upgrade of 50m bushels to 754m bushels
in the forecast for domestic stocks at the close of the season, BofA Merrill
Lynch was upbeat on prospects for shipments.
"Russia now may have to import wheat to meet domestic demand,"
after potentially shipping more than its exportable surplus in an early-year trade
Furthermore, "recent excessive rain in the southern hemisphere
during the harvest season," in areas such as Western Australia and Argentina, "are
offering support to wheat prices, and open the door to stronger demand for US
exports going forward".
With global stocks in for a "substantial" drop over 2012-13,
"with the most recent supply disruptions in the US and Australia potentially
damaging the next harvest, wheat prices could have some upside in 2013".
The bank also said it saw "upside to corn prices in the
first half of 2013", thanks to the low level of US inventories, while saying it
was "less constructive" on the prospect for soybean futures, "given the likely
rebound in South American soybean production".
The comments contrast with the market reaction to the USDA's
latest crop revisions, which has sent wheat prices sharply lower, with Chicago
futures on Wednesday hitting a five-month low of $8.09 a bushel.
The March contract staged some recovery to $8.20 ¾ a bushel
as of 08:15 local time (02:15 UK time), down 0.1% on the day.
March corn was also 0.1% lower, at $7.27 ¼ a bushel, with January
soybeans down 0.5% at $14.64 ¼ a bushel.