Thursday, July 14, 2011

Grain prices still heading for a dip, says Goldman

by Agrimoney.com

Goldman Sachs stuck by forecasts of a tumble in grain prices by the autumn despite downbeat official estimates of US inventories, warning over buoyant expectations for ethanol plants' appetite for corn.
The investment bank acknowledged that the US Department of Agriculture's below-consensus estimates unveiled on Tuesday for domestic corn and wheat stocks at the close of 2011-12 "could push prices higher in the near term".
Corn futures soared 3% in Chicago in the last session, and wheat prices 5%, before stabilising in early deals on Wednesday.
"We see prices as currently supported by lingering uncertainty on old-crop inventory levels as well as new-crop production," the bank said.
"Near term, we expect that this uncertainty will continue to be reflected in elevated price volatility and a higher risk premium that will support prices above our forecast."
'Lower crop prices'
However, Goldman retained a forecast that prices of corn will both fall below $6 a bushel in three months' time, implying losses of more than 10% compared with the expectations being priced in on futures market.
"Assuming average weather conditions materialise in coming months, we continue to expect lower crop prices this fall," the bank said.
Corn prices were most vulnerable, and set to resume their traditional discount against wheat in Chicago by year end, with the bank sceptical over the upgrade to corn use by ethanol plants, which meant more of the grain going to make ethanol rather than livestock feed for the first time.
"While the USDA invokes strong ethanol producer margins, we believe that ethanol penetration in the US is close to the blend wall," at which production reaches the maximum levels that can be blended into gasoline.
There remains "little room for demand and production growth" until E15, a 15% blend of ethanol with gasoline, "can be commercialised", the bank added.
Soybeans vs corn
Soybeans retained the best prices prospects, with Goldman's forecasts implying values in line with the current futures curve, rather than well below, as for corn and wheat.
"While corn prices may outperform soybean prices in the near term - as the USDA's US soybean inventory forecast came in line with expectations versus a below-consensus corn inventory forecast - we expect that soybean prices will outperform corn prices over the next 12 months."
"We see soybeans as likely to remain in a deficit in 2011-12 on strong demand and acreage loss to corn and cotton."

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