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Goldman Maintains Neutral Recommendation on Commodity Prices

June 11, 2013

Goldman Sachs Group Inc. maintained its neutral recommendation on commodity prices, predicting a significant decline in agriculture in the second half of the year even if the summer weather is worse than in 2011.

Returns for commodities, measured by the Standard & Poor’s GSCI Enhanced Index, will be 2.3 percent over 12 months, Goldman analysts including Jeffrey Currie and Damien Courvalin wrote in a report today. That’s more than the 1.6 percent gain the bank predicted on May 14.

“Prices are unlikely to collapse from current levels as demand is not weak enough to create large unexpected inventory builds while supply rarely creates a surge in inventory like what demand can do when it falls unexpectedly,” they said.

Goldman and Citigroup Inc. have predicted the end of the decade-long bull market in commodities after prices that more than doubled in 10 years spurred expansions at mines, farms and oil fields. Gluts are emerging as the International Monetary Fund predicts global growth of 3.3 percent this year from 3.2 percent in 2012.

Agricultural commodities face “significant downside potential” as harvests in Latin America and North America replenish world inventories should weather in the U.S. not be too detrimental to yields, said Goldman.

Farm View

“Even should summer weather be slightly worse than in 2011, U.S. corn inventories would still recover and prices decline relative to current levels, reinforcing our negative agriculture view,” the analysts said.

Production of corn in the U.S., the world’s largest grower, declined 0.7 percent to 313.95 million metric tons in the year that began September 2011, after parts of the Midwest had the hottest summer since 1955. The crop slumped a further 13 percent in 2012 amid the worst drought since the 1930s, reducing stockpiles before this year’s harvest to the smallest since 1996, and pushing prices to a record last year.

To contact the reporter on this story: James Poole in Singapore at

To contact the editor responsible for this story: James Poole at

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