by Agrimoney.com
Goldman Sachs has, in a report forecasting "sustained elevated crop prices" but cutting hopes for cattle futures, reversed last month's negative call on commodities which sent raw material prices tumbling.
The investment bank, which last month cut its rating on commodities to "sell", said it was "turning more bullish", after lower prices reduced the risk of consumers cutting back on raw material demand, and of inflation being stoked to uncomfortable levels.
"With prices now more in line with near-term fundamentals and price targets, we believe that the risk/reward once again favours being long commodities," the bank said, returning to an "overweight" call on raw material investments.
Goldman lifted its forecast for Brent crude as of the end of the year to $120 a barrel, from $105 a barrel, and recommended fresh long positions in oil, copper and zinc.
'Sustained elevated crop prices'
For crops, the bank said that risks to corn and cotton, especially, were "skewed to the upside", given the threat that production setbacks, such as poor weather, pose at a time of weak inventories.
"While we expect high crop prices to generate a global supply response in 2011-12, we believe that the concurrent tightness across crop balances and our expectation for continued strong demand will limit the recovery in inventories, and points to sustained elevated crop prices," the report said.
Indeed, firm data on crop use in biofuels, livestock feed and exports showed that "demand destruction has yet to occur".
For wheat, over which Goldman has been more lukewarm on price prospects, "continued poor weather is creating risks of an even larger global deficit than we currently expect and presents upside risk to our neutral price outlook".
Corn vs soybeans
However, the bank flagged a warning over soybeans which, while remaining its preferred crop in terms of price prospects, could see its supply squeeze eased by a switch to the oilseed by US farmers giving up on corn, for which sowings have been heavily delayed by rain.
"Sustained planting delays would likely increase the upside to corn prices over the next 12 months while reducing our forecast soybean upside," the briefing said.
The bank's forecast for soybean prices were cut by $1 a bushel on three, six and 12-month time horizons from those stated two weeks ago.
'Tightened supplies'
Hopes for some cattle futures were also reduced, after Friday's data showing placements of animals on US feedlots soaring 9.9%, year on year, last month, twice the pace that traders had expected.
"This larger feedlot count points to strong supplies of live cattle through the summer and in turn lower live cattle prices," Goldman said.
Nonetheless, the bank kept a forecast that Chicago's near-term live cattle contract would stand at 120.00 cents a pound in a year's time, citing the limited supplies of further feeder cattle ready for fattening in feedlots, a factor highlighted to Agrimoney.com readers on Monday by leading analyst Steve Meyer.
"These sustained strong placements since last fall have tightened feeder [cattle] supplies significantly, pointing to lower placements in months ahead and lower fed cattle supplies by year end," Goldman said.
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