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SA weather lowers Goldman hopes for soybean prices

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Goldman Sachs cut its forecast for soybean prices, citing better prospects for South American crops, but forecast profits ahead for investors in the oilseed – and in corn and wheat too.

The downgrade came amid a flurry of reaction to a slew of US Department of Agriculture data on Friday which have been, broadly, perceived as bullish for prices, and helped futures in corn, soybeans and wheat gain more than 2% on Monday.

Goldman sliced by $1.25 to $15.50 a bushel its forecast for soybean prices in three months' time, and by $1.50 to $14.00 its forecast for values on a six-month timescale.

It viewed as "neutral" USDA revisions on Friday to the domestic soybean balance sheet figures, which raised the estimate for 2012 production, citing lower abandonment than had been thought and a greater resilience in yield to last year's drought, but lifted ideas of domestic consumption too.

'Low levels of stocks'

However, the bank said that the recent improvement in South American weather - if coming too late to prevent a delayed sowing season and therefore signalling a slow start to 2012-13 exports from the likes of Brazil – pointed to a strong end result.

"We expect strong US exports to bring US soybean inventories to low levels by March 1, supporting soybean prices," Goldman analyst Damien Courvalin said.

"Beyond that, and barring further deterioration in South American weather, the large ramp-up in South America exports from April on will likely bring soybean prices lower."

'Above the forward curve'

It added that it while not changing its forecast for prices in 12 months' time, of $13.50 a bushel, risks to the estimate were "skewed to the downside".

"Average weather conditions in the US in 2013 would also bring a large supply response in the US and push prices sharply lower in the second half of 2013," Mr Courvalin said.

Nonetheless, the bank's forecasts were "still above the current forward curve" for Chicago futures, which showed soybean prices at $12.88 a bushel in a year's time.

The May and July 2013 contracts were trading on Monday at a little under $14 a bushel, also well below the Goldman forecasts for three and six months.

'Prices will need to rally'

The bank kept its forecasts too for corn and wheat futures above the futures curve.

For corn, Goldman said that - after the USDA on Friday cut its estimate for domestic stocks at the close of 2012-13, citing unexpectedly resilient demand from livestock feeders – "prices will need to rally in the first half of 2013 to achieve the required slowdown in feed use".

For the 2013 crop, "while we see the potential for sharply lower prices in the second half of the year, we believe that better US weather will be required for this move to materialise", Mr Courvalin said.

For wheat, Goldman said that USDA estimates for world stocks were still liable to "modest downward revision" after the forecast for the Argentine harvest was cut only modestly, to 11.0m tonnes, above estimates from most other forecasters.

However, the bank also flagged a disappointing pace of US wheat exports so far in 2012-13, which will require "further improvement soon" to meet USDA estimates.


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