Official corn estimates still too high - Goldman

by Agrimoney.com

Government hopes for the US corn harvest are still too high, even after a 305m-bushel downgrade last week, Goldman Sachs said, in a report warning that official forecasts for soybeans and wheat look optimistic too.

Investors may be overplaying the risk to corn sowings from the delayed spring, given the better returns to be made even from lower-yielding late seedings of the grain than from switching to soybeans or taking insurance.

A change in insurance smallprint may also encourage farmers to sow late, in limiting payouts to the spring projected price, of $6.01 a bushel, and so not fully recompensing growers who may have sold ahead at higher prices since.

"New crop corn price strength offers exceptionally high returns, and we believe farmers have continued planting corn late rather than opting out," said Goldman.

However, the harvest would still be limited more than the US Department of Agriculture has expected by historically high abandonment rates and a potential hit to yields.

Goldman is one of the most influential commodities houses, with a downgrade to raw materials two months ago seen as a major factor behind a market sell-off.

'Upside risk'

Flooding by the Mississippi and Missouri rivers alone could cost up to 1m acres of corn, besides 500,000 acres of soybeans, the bank said, pitching total losses for the grain at 8.1m acres.

The corn yield was pegged at 158.0 bushels per acreage, below the USDA's 158.7 bushels per acre, to reflect the late planting of much of the crop.

Goldman forecast the US corn harvest, the world's biggest, at 13.13bn bushels, 70m bushels below last week's updated official estimate, and a figure which suggested that balances would "likely remain remarkably tight and prices elevated".

While standing by forecasts of Chicago's spot corn futures standing at $8.00 a bushel in three months' time, and $7.80 a bushel on both six-month and 12-month horizons, the bank flagged "upside risk" to its price forecasts thanks to its weakened production hopes.

"In particular, already critically-low old crop inventories suggest that if this supply materialises, corn prices will need to rally further to generate demand destruction."

'Range bound' wheat

For soybeans, expectations of outperformance in Chicago over corn futures had been put "at risk" by the tighter supplies of the grain, although Goldman retained a forecast that the oilseed would perform better than the market is pricing in.

"The strong incentive to plant corn over soybeans could translate into even higher corn acreage than we currently forecast, to the detriment of soybean acreage."

However, wheat prices would stay "range bound", despite a forecast that the US crop would reach 2.036bn bushels, 22m bushels short of USDA estimates.

"Near-term weather conditions remain critically important with elevated corn prices limiting the downside in wheat prices should weather conditions improve markedly," the bank added.

See the original article >>