December 4, 2009

Big upside in corn prices likely in 2010

Corn has the most upside potential of the agricultural commodities in 2010.

US use of corn for ethanol is a major factor in the market's bullish outlook, the bank said in a commodities note.

Low stocks and higher energy prices "suggest material upside" to corn prices, said Goldman.

The bank forecasts Chicago Board of Trade corn futures prices to rise to US$4.75 a bushel by the end of 2010 and average prices of US$5 a bushel in 2011.

Chicago Board of Trade March corn futures recently traded at US$4.03 a bushel.

In other grain markets price forecasts, the bank is more neutral.

The large 2009-10 world wheat crop and "comfortable" stock levels, combined with minimal demand growth, indicate the wheat market will be well supplied in the coming year, said the bank.

Goldman increased its 12-month Chicago wheat price forecast to $6 a bushel from US$5.50 a bushel, with the bullish outlook for corn providing spillover strength.

"The potential for corn prices to exceed our expectations would also present upside risk to wheat prices, as feed substitution between wheat and corn has historically kept the wheat/corn ratio within a relatively limited range," Goldman said.

The 12-month forecast for Chicago soy futures was revised up to US$11 a bushel from US$10 a bushel due to growth in demand from emerging economies.