May 19, 2011

Morgan Stanley predicts higher US grain prices for 2011-12

US corn, soy, and wheat prices should rise this year and in 2012 because higher price tags are needed to encourage new acreage outside the US, in order for supply to keep pace with demand, Morgan Stanley has forecasted.

"While our outlook for soy and wheat prices has moderated, we still see upside to prices," Morgan Stanley said of both years.

The bank lowered its 2010-11 wheat price forecast to US$7.00 a bushel given the weakness observed in the last 3 months. It lowered its 2010-2011 and 2011-2012 soy price forecasts to US$13.25 and US$14.50, respectively.

"We expect soy prices to remain weak in the near term, as slow US export and crush demand has left the balance more comfortable than previously thought," the investment bank said in its note to clients.

Tightening soy and wheat balances leave little room for supply disruptions in 2011, it added.

The bank raised its 2010-11 and 2011-12 corn price forecasts to US$6.75 and US$7.25 a bushel, respectively, to ration demand in the face of limited supply.

"The inelasticity of supplies of corn in the short run will force prices higher to limit demand and preserve tight inventories," it added.

The brokerage reiterated its preference to be long December 11 corn as it believes weather complications will continue to suggest lower-than-expected aggregate acreage in 2011.