Raising our corn price forecasts

- Beyond near-term volatility we expect wheat prices to settle lower "Wheat supply disruptions continue to dominate the agricultural markets. Although wheat prices have retrenched from their recent peaks on improving weather, we expect prices to remain volatile until the market gains a better grasp on this year’s deficit. Barring further deterioration in crop production, we expect the elevated wheat inventories coming into this supply shock to push prices lower than currently priced in by the forward curve and forecast prices of 650 cents/bu over the next 12 months. Further, a potentially large supply response to higher prices in upcoming winter wheat crops suggests risk to this forecast is skewed to the downside."
- We are raising our corn price forecasts on tighter balances "For corn, continued strong demand over the past few months and prospects for wheat-to-corn demand substitution suggest even stronger corn demand than we had previously expected. While strong old-crop demand has lowered expected beginning stocks for the 2010/11 crop, our forecast of lower US corn yields also points to lower corn production in 2010/11 than the market currently expects. We therefore forecast the deficit that we have been expecting to widen further and are revising our corn price forecast higher to 465 cents/bu in 3 months, and 515 cents/bu in 6 months, leaving us constructive versus the forward curve."
- Ample soybean supplies will meet strong EM demand "Soybean prices have remained supported by strength in the rest of the grain complex and continued remarkably strong emerging market demand, in particular import demand from China. We believe that the expected record-large US crop and the prospect for another large South American crop will meet this strong demand and we continue to expect marginally lower soybean prices. However, an intensification of the nascent La NiƱa weather pattern would create upside risk to these forecasts as it has historically hurt yields in South America."

GoldmanSachs Agriculture Update 20100826

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