October 26, 2010

 

Morgan Stanley lifts wheat, corn, soy price estimates

US banking giant Morgan Stanley raised its wheat, corn and soy price predictions Monday (Oct 25) for both the 2010-11 marketing season and the 2011-12 period.

 

"We are lifting our 10/11 and 11/12 corn price forecast to US$6.00/bushel and US$5.75/bushel, respectively. We are also raising our 10/11 and 11/12 wheat price forecast to US$7.50/bushel and US$7.25/bushel, and our 10/11 and 11/12 soybean price to US$11.75/bushel and US$12.50/bushel, respectively," Morgan Stanley said Monday (Oct 25).

 

"The changes leave us most bullish corn and deferred beans, and largely neutral on wheat," the bank added. According to the bank, corn prices could need to trade to as much as US$7.00/bushel if they are to limit discretionary ethanol demand.

 

"Although corn prices are up nearly 75% from their lows in June, prices are still not rationing demand. We believe that corn prices need to trade to at least US$6.00/bushel, and quite possibly US$7.00/bushel, to ration discretionary ethanol demand," the bank said.

 

It also added that corn acreages need to increase by an additional 2.5 million acres next year to keep inventories at the current tight levels.

 

The bullish picture for corn prices and the prospect of increased acreage for corn planting is set to benefit the soy complex in 2012, as both products compete for acreage in the US.

 

"With the US soybean balance slightly more comfortable, beans can afford to relinquish acres, however, they will quickly need to retain those acres in 2012 or else risk inventories falling to potentially record-tight levels," the bank said, adding that it believed that the current US soy production is not enough to to satiate growing domestic and export demand.

 

In this sense soy prices would need to move higher to be an incentive for acreage expansion. According to the bank, soy would need to trade above US$12/bushel if farmers are to expand acreage.

 

With regards to wheat, the bank said that it expected prices to increase at a slower pace.

 

"We are relatively neutral on wheat though believe that prices will track higher with rising corn and soybean prices, albeit not by the same magnitude, in an effort to maintain acreage," the bank added.

 

Wheat is a major feedstock to make ethanol in Europe, whereas corn is the main feedstock for ethanol production in the US. Soyoil is a major feedstock for biodiesel production.