Goldman Sachs hiked its forecast for corn, soybean and wheat futures despite warning that an official US report next week could publish a higher yield estimates than investors expect and prompt a temporary plunge in prices.
The bank raised its estimate for the price of Chicago’s near-term corn lot in three months’ time by $1.45 a bushel to $7.35 a bushel, and its forecast for wheat by $1.60 to $7.50 a bushel, citing damage to yield prospects caused by a "remarkably hot" July.
The US corn yield now looked set to average only 154.0 bushels per acre, 4.7 bushels per acre below the current US Department of Agriculture average.
And, with the wet spring set to limit harvested acreage below the USDA’s current expectations, the total crop would come in at less than 13bn bushels, and more than 500m bushels below the official estimate.
"On net, we now forecast that the 2011-12 US corn stocks-to-use ratio will decline to 5.5% and that corn prices will need to rally further to achieve demand destruction," the bank said.
The stocks-to-use ratio is a key measure of the availability of a crop’s supplies, and therefore of the price it is likely to command, with 5.5% a historically low figure, representing less than three weeks’ supplies.
‘Good entry point’
However, the bank cautioned investors against anticipating that the compromised US corn yield prospects would be factored into official data when USDA officials next Thursday release their latest monthly Wasde crop report.
A Goldman model factoring in the reasonable condition of the US crop so far, as revealed in weekly USDA data, coupled with underlying yield expectations and early-May planting statistics calculated that the Wasde yield figure could come out as high as 160 bushels per acre.
With some analysts talking of figures 10 bushels per acre lower, such an estimate would signal far looser supplies than the market has factored in, and likely send corn prices tumbling.
"A high US yield estimate by the USDA next week may provide a good entry point to enter long Chicago corn positions," Goldman said.
‘Strong increase in feeding’
The particularly steep lift to the estimate for wheat futures represented an expectation that the grain is being used in place of expensive corn to a far greater degree than has so far been appreciated.
"With wheat cash prices trading below corn cash prices in the US since June, we expect a strong increase in wheat feeding" during the July-to-September quarter, Goldman said.
With the bank also a little more gloomy than USDA statisticians on American wheat yields, it forecast that wheat consumption and exports would exceed production by some 380m bushels, bigger than the official estimate for the deficit.
Although Goldman said that prospects for the US soybean deficit in 2011-12 looked less strong, given weaker-than-expected paces of crushing and exports, prices of the oilseed would be underpinned by spillover strength from corn.
The bank raised its price forecast for Chicago’s near-term soybean lot in three months’ time to $13.75 a bushel, from $13.00 a bushel.