March 26, 2008

US corn and soy prices expected to rise a further 20-percent

US securities firm Morgan Stanley has raised its price forecasts for corn and soy by 20 percent as growing food demand and ethanol production drive  

Corn may average US$6 a bushel and soy US$18 a bushel in the 2008-2009 marketing year, New York-based research analyst Hussein Allidina wrote in an e-mail to investors.

Allidina forecast an average of US$5 for corn and US$15 for soy last month.

Corn and soy are at near-record prices this month, as investors, expecting further gains bought massive amounts of grains. Rising oil prices also heralded an expanded use of ethanol, which uses corn as feedstock.

Allidina said US production in the near term would not be able to meet ethanol and export demand. Prices would move "considerably higher", he wrote.

Corn prices have risen 35 percent in the past year, reaching a record US$5.795 a bushel on March 11. The price has continued to climb as preliminary reports suggest US farmers are going to plant more soy this year, meaning tighter corn supplies.

Government mandated ethanol targets and growing demand in developing countries would likely support agricultural prices further, Allidina wrote.

Soy prices have risen 71 percent in the past year, reaching a record US$15.86 on March 3, as US soy acreage reached their lowest level in more than a decade.

Dismissing the price declines in commodities last week, Allidina said these declines resulted from factors such as a strengthening US dollar and reduced inflationary expectations, rather than a change in the underlying supply and demand fundamentals.