Goldman Sachs downplayed the support to grain futures from
the Ukraine crisis and a potential El Nino in a report downbeat on agricultural
commodity prices, foreseeing a drop of 10% over the next year.
The investment bank said that sanctions against Russian
grain exports, one of the concerns that has prompted a sharp recovery in world
wheat prices since late January, looked off the cards despite the mounting
tensions in Ukraine.
"Is extremely unlikely that any sanctions would be placed on
Russian exports of food given the humanitarian dimension and that the vast
majority of Russian agriculture exports are sent to developing nations," the
bank said, while highlighting a threat to shipments of aluminium and copper.
Separately on Monday, Russian wheat was revealed as the
lowest offered to Iraq at tender, at $331.69 a tonne on a c&f free out
(ciffo) basis, below Canadian supplies offered at $340.50 a tonne and Ukrainian
at $342.73 a tonne.
Wheat price forecasts
Goldman's comments came as wheat prices soared 4% at one
point in Chicago in Monday, lifted by fresh tensions in Ukraine, where
pro-Russian demonstrators have ignored a deadline set by Kiev to quit a
Moscow has hinted at a response if Kiev acts against the
demonstrators, saying that "Russia is aware of its responsibility for the lives
of fellow citizens in Ukraine and reserves the right to take people under
protection," language reminiscent of that used to justify the invasion of
However, the bank stood by an expectation of wheat prices falling
to $5.75 a bushel on a 12-month horizon, well below the $7.26 ¼ a bushel that
Chicago May 2015 futures were factoring in on Monday.
On a three-month horizon, the bank forecast Chicago futures at
$6.10 a bushel on a front month basis, below the $6.25 a bushel it forecast a
month ago, and the $6.84 ½ a bushel at which July 2014 futures were trading.
'Push wheat prices
The forecasts also assumed that El Nino would not, overall, hurt
wheat supply prospects significantly, despite the weather pattern's record of causing
undue dryness in Australia and India.
"Concerns over weather conditions will likely limit the
decline to wheat prices in the short term," the bank said.
"However, given decent production prospects for the European
and Black Sea crops, normalisation in US precipitation or limited El Nino
impact would push wheat prices lower as global inventories remain comfortable."
And Goldman also questioned ideas of an El Nino lifting corn
and soybean prices too, given that yields of both are, in the US, "usually favourably
impacted by a summer El Nino as conditions are typically cooler and wetter than
Hot weather is a threat to corn in particular, as it lowers
the success of the pollination process.
"An El Nino event would… reinforce our bearish view on corn
and soybean prices."
The bank stuck by expectations of front-month corn futures
averaging $4.00 a bushel in Chicago in 12 months' time, well below the $5.14 ¾ a
bushel implied by July 2015 futures.
"Cold and wet conditions in May create upside risk to our
price forecast on lower US acreage while the potential for the El Nino weather
pattern this summer creates upside risk to our yield and downside risk to our
Soybeans will stand at $10.50 a bushel in a year, below the
$12.34 a bushel shown by July 2015 futures on Monday, with the bank adding that
the wet US spring was only adding to chances of high sowings of the oilseed,
which can be planted later than corn, its main rival in spring seeding
Goldman did highlight that an El Nino "would skew risk to
our soft commodity price forecasts to the upside".
However, while raising its forecasts for coffee prices to
175 cents a pound on three-, six-, and 12-month forecasts, these remain below
the futures curve.
On cocoa and sugar it stuck with price forecast below the
futures curve too, forecasting agricultural commodities overall falling 10.0%
over the next year.
That it most bearish outlook for all commodity sectors
except precious metals, which Goldman saw falling by 15.0% over the next year,
with livestock prices viewed as in for a 2.0% drop.