January 26, 2011

Goldman Sachs raises corn, soy price forecasts on tight supplies

US corn and soy price forecasts for 2011 on further tightening of global supplies were raised by Goldman Sachs, following a stable demand and a descent in production revisions by the USDA.

The investment bank raised its corn and soy three-month price forecasts to US$7.15/bushel and US$16/bushel, respectively, and its six-month and 12-month forecasts to US$6.75/bushel and US$15.75/bushel, from US$5.85/bushel and US$14/bushel.

"Rising concerns over weather conditions in the Southern Hemisphere, which is now entering the key summer growing months, had supported crop prices higher throughout December...These poor weather conditions have impacted most major crops with dryness in Argentina jeopardizing the local corn and soy crops," the bank said.

Goldman's forecasts additional tight fundamentals to those already reported by the USDA in its World Agricultural Supply and Demand Estimates January report.

"Combining the USDA's lower supply forecasts to our outlook for further demand strength points to additional declines in ending stocks. Southern Hemisphere weather creates risks of further supply downgrades and in turn tightening of the crop balances," the report said.

Corn and soy prices have rallied over the past month on firm demand and looming concerns over Argentina output. Corn prices were pressured in particular by ethanol production.

March corn futures closed Monday at US$6.55/bushel on the Chicago Board of Trade, up 5% on the year, while CBOT March soy futures ended Monday (Jan 24) at US$14.04/bushel, advancing 2% in 2011.

Goldman Sachs added that while wheat prices will likely be supported by increasing corn and soy prices, the wheat market is well supplied "and...deferred wheat prices are too elevated, especially relative to corn and soy prices," it said.