Goldman spars with Morgan Stanley on corn outlook

Goldman Sachs raised its forecast for corn prices, although remained less upbeat than rival Morgan Stanley, but cut its estimate for wheat prices following the surprise US data which prompted a sharp divergence in futures in the grains.

Goldman Sachs raised by $0.25 a bushel to $4.25 a bushel its forecast for Chicago corn futures in the three-month and six-month horizons, and to $4.00 a bushel its projection for prices in 12-months' time.

The upgrades reflected the US Department of Agriculture's surprise data revisions on Friday, which cut the forecast for last year's US harvest and raised the consumption estimate, leaving inventories on course to end 2013-14 considerably lower than investors had expected.

Besides "surprisingly" cutting its US corn yield estimate, the USDA data showed December 1 corn stocks below expectations, "pointing to strong [September 1-December 1] feed and residual disappearance/pipeline refill", Goldman Sachs analyst Damien Courvalin said.

'Large US corn acreage'

However, the bank's forecasts remained below the futures curve, with Goldman Sachs saying that US corn stocks remained "plentiful", meaning there was only "limited" upside for corn prices.

"Importantly, new-crop corn prices continue to offer elevated planting margins, both outright and relative to soybeans, leading us to expect a large US corn acreage of 92.5m acres," Mr Courvalin said.

"The combination of elevated US acreage and potentially record high yields under average weather conditions points to further builds in US inventories in 2014-15, leaving us bearish relative to the forward curve."

The ratio of 2.4 in new crop December 2014 corn futures prices to November 2014 soybean futures "is skewed too significantly in favour of US corn plantings".

'Continued tightening'

The outlook contrasted with a forecast from Morgan Stanley, the rival investment bank, that corn futures would keep rising to average $4.70 a bushel in the July-to-September quarter, after the USDA data offered "some hope for the corn bulls".

Indeed, Morgan Stanley - one of the few commentators correctly to predict Friday's USDA corn harvest downgrade - forecast "a continued tightening in US stocks" estimates, foreseeing scope for further upgrades to US ethanol and export demand figures.

"We expect that a continued tightening in US stocks should prove supportive for corn flat price and spreads," the bank said, rating corn its most bullish commodity bet, ahead of palladium.

The market continues to "underestimate the potential for a rebound in US demand."

Wheat prospects

Morgan Stanley was also more upbeat on wheat prices, forecasting a rise to $6.80 a bushel in Chicago in the July-to-September quarter, more than $0.80 a bushel ahead of the price of September futures, saying that early-season export demand "remains price supportive".

However, "continued global feed substitution back to corn, and adequate supply in the European Union and former Soviet Union, should contain the upside potential for prices," the bank added.

Goldman Sachs lowered its forecasts for wheat prices from $6.50 a bushel to $5.85 a bushel on the three-month and six-month horizons, citing the surprise upgrade by the USDA on Friday to its estimate for domestic, and world, stocks at the close of 2013-14.

However, this outlook was above the futures curve.

"While the global wheat outlook appears increasingly benign, we still see potential for US hard red winter wheat prices to outperform on a reacceleration in export sales on Brazilian purchases," Mr Courvalin said.

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