Goldman Advises Keeping Soybean, Cotton, Corn Bets


Investors should maintain bets on higher prices for soybeans, cotton and corn, Goldman Sachs Group Inc. said after the U.S. Department of Agriculture lowered stockpile estimates.

The bank’s crop outlook is unchanged after the USDA released new projections yesterday, analyst Damien Courvalin wrote in an e-mailed report. The USDA cut its forecasts for inventories before this year’s harvests and said world supplies of crops including corn, wheat and soybeans will slump 2.2 percent.

Shrinking stockpiles have pushed up food costs, helping to spark protests and riots across North Africa and the Middle East. World food prices climbed to a record in January, the United Nations said on Feb. 3.

U.S. corn planting will likely climb “to the detriment of soybeans this year, as corn margins will likely remain most appealing to U.S. farmers in February,” Courvalin wrote. “Acreage competition will keep crop-price correlation elevated.”

Goldman Sachs kept its recommendation to hold long positions in Chicago March-delivery corn futures and November- delivery soybeans, as well as New York-traded December-delivery cotton futures, the report shows.

Soybeans, Cotton

The bank forecasts soybean prices will rise to $16 a bushel in the next three months, while the six- and 12-month target price is $15.75.

“While soybeans may underperform corn in the near term, we continue to expect further price strength in 2011, as a loss of U.S. acreage would create high risks of another deficit in 2011- 12,” Courvalin wrote.

Goldman Sachs forecasts cotton prices in three months’ time at $1.50 a pound, with a six- and 12-month forecast of $1.25.

“Inventory levels remain critically low,” the analyst wrote. “The large deficit and strong emerging-market demand require significantly higher new-crop prices to secure sufficient U.S. acreage.”

Corn may rise to $7.15 a bushel in the three-month period before falling to $6.75 later in the year, according to Goldman Sachs. Wheat prices may drop to $7.75 a bushel within three months before sliding further to $7.50, the report shows.

Ethanol Demand

“We continue to expect further upside in corn prices on continued strong U.S. ethanol demand,” Courvalin wrote. “We believe wheat inventories remain sufficient to absorb the 2010- 11 supply shortfall and view wheat prices as too elevated relative to corn and soybeans.”

Stockpiling in the face of food inflation and social unrest is likely to continue to support milling-wheat prices, creating “upside risk” to the three-month price forecast, according to the analyst.

March-delivery corn last traded at $6.96 a bushel on the Chicago Board of Trade and November-delivery soybeans were at $13.97 a bushel. Cotton for December delivery was at $1.27 a pound on ICE Futures U.S. in New York.