Soybean prices face an "increasing likelihood" of a strong rally from current levels, thanks to the need to keep up with corn values and secure a place in farmers’ sowing schedules, Goldman Sachs said.
The investor bank, like competitor Morgan Stanley, cut its estimate for the US corn yield, citing a hot and dry summer in the US Midwest.
However, unlike its rival, Goldman Sachs said it was soybeans that presented the greater price potential, saying there was "strong upside risk" to its forecast that futures in the oilseed would stand at $13.75 a bushel in three months’ time, and $14 a bushel in six-month and one-year horizons.
"We are becoming increasingly convinced that soybean prices will rally sharply over the next 12 months," the bank said, recommending invests to hold long call positions in soybean options.
While Goldman analysts forecast the US soybean yield at 41.6 bushels per acre this year, 0.2 bushels per acre ahead of the US Department of Agriculture estimate which sets the market benchmark, they highlighted the oilseed’s relative cheapness compared with corn.
The roughly 2.0 times that soybeans futures are trading at in Chicago, compared with corn, is among the lowest of the last 30 years, and compared with a ratio of about 3 hit early last year.
The ratio between the two prices is seen as having a large influence on which crop is favoured by famers in both North and South America who, typically, have the option of planting either.
"With soybean prices near an historically-low level relative to corn prices, we see risks that soybean loses acreage to corn both in South America this fall and in the US next spring," the bank said.
"Such an outcome would push US soybean inventories down to dramatically-low levels and support soybean prices sharply higher to achieve demand destruction.
"As a result, soybean prices need to either outperform corn prices in coming months to secure sufficient acreage or will need to rally sharply next summer to achieve demand destruction in the face of lower supplies."
South American decisions
The comments come at the start of a South American planting season expected to see a jump in corn acres, thanks to high prices, in part at the expense of soybeans.
Morgan Stanley on Friday estimated corn sowings in Brazil, the third-ranked producer of the grain after the US and China, soaring by 800,000 hectares in 2011-12.
In fourth-placed Argentina, corn sowings could rise by 20%, or 600,000 hectares, analyst Michael Cordonnier said.
Goldman also cited the potential of the return of La Nina, a weather pattern associated with dry conditions in South America and reduced soybean yields, and a "likely acceleration" in Chinese imports as extra supports for futures in the oilseed.