Goldman Sachs urged caution on betting on further rises in
corn prices, even as benchmark December futures hit a nine-month high, rating
soybeans as a better investment.
The investment bank raised its price forecasts for futures
in both crops citing "continued hot and dry Midwest weather" and, noting poor
conditions in Australia, China and the former Soviet Union too, also upgraded expectations
for wheat values.
However, its upgraded estimate for corn futures standing at
$6.25 a bushel on three, six and 12 month horizons suggested a fall-back from
Chicago's benchmark December contract stood at $6.55 a
bushel at 04:45 local time (10:45 UK time) on Monday, a gain of 3.2% on the day.
Indeed, it recommended that investors take a short position
in corn, balanced against a long position in soybeans, for which it forecast
further gains still lying ahead.
The relatively downbeat expectation for corn prices
reflected forecasts that, even with a US corn yield downgraded by Goldman to
153.5 bushels per acre, below a US Department of Agriculture forecast of 166.0
bushels per acre, the harvest should reach a record.
With sowings at a 75-year high, he bank pegged US corn
production this year at 13.6bn bushels.
Meanwhile, 2012-13 would see "limited US demand growth", and
competition in export markets from Brazil.
"We expect [US] ethanol production will be unchanged next
year, export growth will be limited given the very large Brazilian safrinha
crop, and US feed and residual demand will only grow modestly given the USDA's
forecast of lower grain-consuming animal units in 2012-13," Goldman said.
'US the only supplier'
However, soybean futures looked set to find continued
support from the prospect of a squeeze on supplies fostered by a weak South
American harvest earlier in 2012, and the risk of weather damage to the next
one, let alone any harm to the US crop from heat.
"The global availability of soybeans will be limited until
the next South American harvest, with the US the only supplier for Chinese
imports until then," Goldman said.
"Further, while we believe that the record large soybean
crops that the USDA is forecasting in Brazil and Argentina later this year are achievable,
there are still a lot of weather risks around these forecasts."
Higher soybean prices "will be required to limit demand in the
coming months", Goldman said, seeing "downside risk" too to from the hot
Midwest weather to its forecast for a US soybean yield of 43.5 bushels per acre.
Corn vs soybeans
New crop soybean prices, currently valued at some 2.2 times
those of new crop corn, were to recover to a ratio of 2.5, even if US weather
improves, a factor which would depress futures in both crops.
"We also see weather as a catalyst for the outperformance of
"If weather normalises then we would expect the corn weather
premium to subside, while if weather remains poor, the outlook for lower soybean
yields will support prices."
The bank recommended investors to go long in November
soybeans, balanced against a short position in December corn.
Goldman upgraded its forecast for Chicago wheat futures to
$7.15 a bushel on three, six and 12 month horizons.
"Markets will continue to focus on the growing downside
risks to global wheat production with hot and dry weather conditions in Russia,
Ukraine, China, India and Australia already pointing to lower wheat supplies
and ending stocks than currently projected by the USDA," the bank said.
"Growing downside risks to global wheat production… point to
lower wheat supplies and ending stocks, and will keep wheat prices trading at a
sustainable premium to corn prices."