New USDA stocks data decreases grain price estimates

//06 Oct 2011
Goldman Sachs downgraded its grain price forecasts, after higher-than-expected US stocks data last week eased fears of a shortfall of corn supplies.
Grain analyst Damien Courvalin slashed his estimates for Chicago corn prices over the next three- to six-months to $6.15 a bushel from $7.35/bu and to $5.50/bu from $7.00/bu over the next year, citing data from the US Department of Agriculture showing inventories "well above our and consensus expectations."

For wheat, he lowered estimates from $7.50/bu, $7.90/bu and $7.50/bu to $6.40/bu, $6.50/bu and $6.00/bu on the back of both lower-than-expected corn prices and consensus-beating wheat stocks.

Grain prices plummeted Friday after the USDA stunned markets by pegging domestic corn inventories at 1.128 billion bushels as of Sept. 1--23% higher than a forecast released a fortnight ago by a different division of the USDA and well above market forecasts of below 1 billion bushels.

Significantly, stocks of wheat, a key corn feed substitute, also came in well above market expectations at 2.15 billion bushels, implying that recent high prices had started to reduce demand more than many had predicted.

"We expect these higher 2011-12 corn beginning stocks to more than offset our forecast for lower new-crop corn production and allow for both stronger demand and higher ending stocks than we had previously expected," said Courvalin in a note.

Meanwhile the "the recent record-high wheat-to-corn price correlation will likely decline" as higher supplies encourage less substitution, he said.

Soybeans less affected
The data was also bearish enough for Courvalin to downgrade Goldman's top bullish call, soybeans.

He cut his price forecasts from $13.75/bu, $14.00/bu and $14.00/bu over the next three, six and 12 months to $12.60/bu, $13.00/bu and $13.00/bu respectively.

But he said that he expected soybean prices to outperform corn as "the tightening of the soybean balance relative to the corn balance will likely intensify the competition for U.S. acreage next spring," while the La Nina weather pattern this spring could present further world production risks.