Bloomberg News

Goldman Lifts Grain-Price Forecasts as Drought Withers Crops

July 12, 2012

Goldman Sachs Group Inc. (GS:US) increased its price forecasts for corn, soybeans and wheat after the worst drought since 1988 spurred the U.S. government to cut harvest estimates in the world’s biggest exporter.

The bank raised its prediction for corn prices to $6.90 a bushel from $6.30 in three to 12 months and boosted its soybean forecast to $16.25 a bushel from $15.50 in three and six months. It lifted its wheat estimate to $7.70 a bushel from $7.15 in three to 12 months.

Corn soared 41 percent since June 15 in Chicago as drought wilted crops in the U.S., supplier of about 36 percent of the global harvest. Wheat surged 32 percent and soybeans rose 15 percent. World food costs may increase through October, says the United Nations. Citigroup Inc. also boosted its price forecasts and Rabobank Group expects futures to advance.

“Deteriorating crop conditions will provide further bullish fodder,” Rabobank analysts led by Luke Chandler said in a report. “Higher and more volatile prices look set to be a feature of agricultural markets,” they said.

More than 1,000 counties in 26 states are being named natural-disaster areas in the U.S., the biggest such declaration ever by the USDA. Moderate to extreme drought covers about 53 percent of the Midwest, the main growing region. Crop-price gains are the biggest this year among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index.

Yields Slump

The drought will probably cut corn yields to 143.5 bushels an acre, compared with the government estimate of 146 bushels, Goldman said. That’s 16.5 bushels lower than yields in average conditions and the second-biggest loss in yields since 1950, excluding 1983 and 1993 when there were major floods, it said. The bank’s estimate would be the lowest yield since 2003-2004, according to Bloomberg calculations.

The U.S. agency cut its estimate for the corn harvest yesterday to 12.97 billion bushels (329.45 million metric tons) from a June prediction for a record 14.79 billion. Analysts expected 13.534 billion bushels, based on the average of 14 estimates in a Bloomberg survey. The share of the crop rated good to excellent fell to 40 percent as of July 8, the worst for that date since 1988, according to government data.

Global output will be lower at 905.2 million tons, from 949.9 million tons predicted last month, the USDA said. The government cut its forecast for the U.S. soybean crop by 4.8 percent to 3.05 billion bushels (83 million tons). Stockpiles before next year’s harvest in the U.S. will fall 23 percent to 3.5 million tons, the smallest in nine years, USDA data shows.

Corn futures added 1.4 percent to $7.135 a bushel today, while wheat was little changed at $8.27 a bushel and soybeans fell 0.5 percent to $15.155 a bushel.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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  • GS
    (Goldman Sachs Group Inc/The)
    • $175.76 USD
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