Bloomberg News

Crop Price Decline Top Commodity Opportunity at Goldman Sachs

June 14, 2013

The downside potential for agriculture prices is the biggest trading opportunity across commodity markets for analysts at Goldman Sachs Group Inc. as production recovers, according a report from the bank.

The bank recommends initiating a short position for new-crop corn and soybeans, analysts Damien Courvalin and Jeffrey Currie wrote in a report dated yesterday. Goldman lowered its forecast to $4.75 a bushel for corn and to $11 a bushel for soybeans in three, six and 12 months. That compares with a previous prediction of $5.25 and $12.50 for six and 12 months.

Corn, soybean and wheat futures that surged as drought cut output in 2012 have tumbled into bear markets this year on expectations harvests will rebound. Record U.S. corn output will more than double inventories before the harvest in 2014, and soybean production will be an all-time high, the U.S. Department of Agriculture said June 12. Corn futures are the second worst-performing commodity on the Standard & Poor’s GSCI gauge of 24 raw materials this year.

“While U.S. corn and soybean production levels remain uncertain, we still expect that production will recover relative to last year’s level under most weather outcomes,” the report said. “It will require a significant weather shock to limit the rebuild in corn and soybean inventories given the record large realized South American harvests and current weak global consumption.”

The bank recommended a basket short two December 2013 corn contracts on the Chicago Board of Trade and short one November 2013 soybean contract as it sees a lower soybean to corn price ratio under most weather outcomes, it said.

“While we may be too early in entering this trade, we prefer that to being late given our belief that current prices embed a large weather premium and that prices could decline in the next six weeks,” the bank said.

To contact the reporter on this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

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


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