Indiana Grain Company, LLC

Posted: 03/18/10

By: tomgrisafi

Goldman Sachs says corn looks the best short-term bet for Chicago investors, although weaker soybean prices offer the chance to exploit the oilseed's bullish long-term prospects.

The world corn market will tighten in 2009-10 despite raised forecasts for US corn inventories, with global corn stocks falling as a percentage of consumption, a key measure of the squeeze on supplies.

And it will "remain tight" in 2010-11, with the world stocks-to-use ratio falling further, as biofuel usage swallows extra grain.

Furthermore, US corn production may fall short of forecasts, with Goldman research suggesting a yield of 156 bushels an acre this year, assuming average growing conditions, a lower figure than other analysts are factoring in.

"We maintain that corn price risk remains skewed to the upside from current levels," Goldman said, leaving its forecast for prices in 12 months at $4.75 a bushel, some 15% higher than futures are pricing in.

"We continue to favor long positions in corn, owing to expected tighter balances in the upcoming crop year and our constructive oil forecast, which will likely lend some support to corn," says Goldman.

However, the bank said it expected "little upside" from the agricultural commodities complex as a whole, highlighting that the wheat market's "soft fundamentals" were likely to extend into the next crop year.

Wheat prices are being undermined by, besides strong production, a dearth of exposure to biofuels markets and sluggish growth in food demand, the bank said.

Soybean prices too were likely to come under pressure, thanks to a strong South American crop and a potential rise in US plantings.

Goldman said it saw "downside risk" to a forecast of soybean prices hitting $9.50 a bushel in six months' time, a modest premium to September futures values.

Nonetheless, with developing country demand for soybeans on the rise, the bank advised investors to "position for future strength" by snapping up soybeans at low levels expected this year.

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