October 14, 2008

Goldman Sachs, traditionally one of the most bullish of the banks in its outlook on commodity prices throughout the commodity bull-run, has revised down all of its agricultural commodity price forecasts Monday (October 13), due to a weakening demand outlook.

The anticipated global recession is seen to curb demand for all commodities, although agricultural products will be supported by the fact people will still need to eat, regardless of the economic environment.

This, combined with credit constraints and investors' desire to lessen the risk, has lead Goldman Sachs to reduce its price forecasts. The report also noted falling oil prices as bearish for the agricultural markets.

"Lower energy prices will likely reduce the cost basis for agricultural production," said the report. "Although fertilizer prices will likely continue to receive support from tight supplies, any declines given the weaker energy complex, combined with lower energy input prices across other parts of the agricultural production chain, will likely move the overall cost basis moderately lower, reducing support for prices."

Wheat three-month forecast was revised down to US$6.50 a bushel from US$7.50 a bushel. Most-active Chicago wheat closed at US$5.63 a bushel Friday (October 10).

Corn three-month forecast was revised down to US$5 a bushel, from US$6.50 a bushel. Most-active Chicago corn futures closed at US$4.08 Friday.