December 13, 2007

Soy to lead agricultural gains in 2008

Rising demand for biofuels and acreage shortage may prompt soy to lead gains among non- energy commodities next year, Goldman Sachs Group Inc. said.

Analysts led by Jeffrey Currie, London-based head of global commodities research, said in a report that both supply and demand will further "tighten global soy fundamentals over 2008 and 2009 should there be still good investment opportunities in oilseed."

The New York-based bank raised its 12-month forecast for the crop by 61 percent to US$14.50 a bushel from US$9 a bushel. Wheat in Chicago may trade at US$7.50 a bushel in a year compared with a previous forecast of US$6, Goldman said. The bank raised its estimate for corn by 20 percent to US$5.30 a bushel from US$4.40.

Agricultural products have been the best-performing commodities this year because of rising demand for biofuels and as droughts curbed supply. Wheat rose to a record in September while soy climbed to a 34-year high this month and corn reached a 10-year high in February.

Goldman raised its 12-month returns forecast from the Standard & Poor's GSCI Agriculture index to 5 percent from 2 percent. The bank raised its 12-month forecast for the S&P GSCI, an index tracking commodities, to 16.1 percent from 12.3 percent.

The S&P GSCI index of 24 contracts has returned 27 percent this year, heading for its biggest annual gain since 2002. Investments in funds and products tracking commodity indexes will rise to US$150 billion in January from US$110 billion this year, S&P said November 1.

Goldman analysts say "buying opportunities exist across the commodities complex in 2008," and is likely to "continue to recommend an overweight investment allocation to commodities."