Goldman Sachs extended a round of broker upgrades to crop prices forecasts, predicting fresh records for corn and soybean futures, even as grain prices fell from record highs, sapped by a wetter outlook for US weather.
The bank said that ethanol producers would need to suffer their share of rationing of corn supplies, now that drought and heat had further lowered prospects for the US Midwest crop, meaning prices needed to hit $9.00 a bushel on the three-month horizon, by $2.10-a-bushel higher than previously expected.
This would be "a level at which we believe ethanol destruction materialises, as it brings the cost of producing ethanol above out forecast for RBOB gasoline blendstock prices".
Crop prices at close on Monday
Chicago soybeans, (November): $16.22 ¼ a bushel, -4.0%
Chicago wheat, (September): $9.12 ¾ a bushel, -3.3%
Kansas wheat (September contract): $9.14 a bushel, -2.9%
London wheat, (November): £190.50 a tonne, -2.1%
Paris wheat, (November): E265.25 a tonne, -1.7%
Chicago corn (December):$7.85 ¼ a bushel, -1.4%
Paris rapeseed, (November): E516.50 a tonne, -1.3%
The bank's price estimate - which followed a price caution from Morgan Stanley last week that corn prices could temporary hit $10 a bushel, while Macquarie on Monday said corn prices could well "spike higher" – factored in forecast of the US corn yield tumbling to 126.0 bushels per acre.
This would be a 17-year low, besides being well beneath the US Department of Agriculture's forecast of 146.0 bushels per acre.
'Critically lower level'
Goldman lifted its estimate for soybean prices on a three-month outlook by $3.75 a bushel to $20.00 a bushel, believing the oilseed's supply and demand dynamics warrant outperformance of corn.
"Soybean inventories are at a critically lower level than corn inventories," the bank said, cutting its forecast for the US soybean yield to a nine-year low of 39.5 bushels per acre, below the USDA estimate of 40.5 bushels per acre.
|Goldman corn price forecasts and (change on last)|
Three-month horizon: $9.00 per bushel, (+$2.10 per bushel)
Six-month horizon: $8.25 per bushel, (+$1.35 per bushel)
12-month horizon: $7.50 per bushel, (+$0.70 per bushel)
"Soybean prices will outperform corn prices, while wheat prices will modestly underperform corn prices," given higher wheat inventories, compared with demand.
The bank upgraded its forecast for wheat futures on a three-month timescale by $2.10 per bushel to $9.80 per bushel.
'Definite downside bias'
However, the upgrades failed to prevent grain and oilseed futures making a soft start to the weak, although major contracts trimmed their losses substantially in mid-morning deals in Chicago.
Selling pressure was stoked by weakness in external markets, as investors fretted over the debt crisis in the eurozone, and particularly Spain, where yields on benchmark 10-year sovereign bonds rose 0.25 percentage points above 7.5%, setting a high since the country adopted the euro.
|Goldman soybean price forecasts and (change on last)|
Three-month horizon: $20.00 per bushel, (+$3.75 per bushel)
Six-month horizon: $18.00 per bushel, (+$1.75 per bushel)
12-month horizon: $16.00 per bushel, (+$0.50 per bushel)
"Coming back from the weekend there is a definite downside bias noted in all commodities," GrainAnalyst.com trader Matthew Pierce said.
However, weather models lifted hopes for Midwest rain, which could still foster a large recovery in US soybean production hopes, if less so for corn, for which damage it largely irreversible.
"Soybeans are getting rains which help in a big way more than they can possibly help corn," Mr Pierce said.
Indeed, soybean futures led the decline in Chicago.
'Somewhat cooler temperatures'
WxRisk.com said that latest models show "some rain in the forecast in the short term, days one-to-five, and also in the six-to-10 day, along with somewhat cooler temperatures for some areas as the pattern is beginning to change a little.
"The heat dome is no longer centred over the central Plains or over Missouri or southern Illinois, like it was back in beginning of July or in late June."
Goldman wheat price forecasts and (change on last)
Three-month horizon: $9.80 per bushel, (+$2.10 per bushel)
Six-month horizon: $8.75 per bushel, (+$1.05 per bushel)
12-month horizon: $7.75 per bushel, (+$0.05 per bushel)
US Commodities said: "The jet stream does sag further south after another three-to-four days of a blow torch."