ABN Amro warned of lower head for prices of agricultural commodities, notably sugar and wheat, even as it upgraded its outlook for raw materials overall, thanks to an improved world economic picture.

The bank, reborn under Dutch national ownership after its ill-fated purchase in 2007, upgraded to "neutral" its rating on the commodities sector, reflecting signs "that the loss of momentum seen in the global economy is close to an end".

The world economy should "regain traction later in the year", as even the debt-burdened eurozone stages some recovery.

However, while flagging "price support" for many commodities, such as Brent crude and zinc, ABN foresaw declines in prices of many crops.

Better supplies

Raw sugar futures looked set to fall to 22.5 cents a pound in New York on the three-month horizon, and average 21 cents a pound over the whole of 2012, down more than 20% year on year.

Coffee investors should expect firm markets in the short-term, underpinned by the "tight market undertone" underpinned by the prospect of record-tight supplies, as a percentage of demand.

But New York futures would average 210 cents a pound over the whole of the year, a drop of some 17%, as an "on" year in Brazil's two-cycle of higher and lower producing seasons boosts world output.

"Prices are expected to come under pressure in the second half of 2012 due to oversupply," ABN said.

'Prices will decrease'

However, while these forecasts were within range of some other estimates, the bank was noticeably more downbeat on prospects for wheat prices than other analysts, citing the pressure from supplies.

"Prices will decrease given the growing confidence that global wheat supply will be ample," ABN analyst Thijs Pons said.

The wheat price forecast compares with an estimate from Standard Chartered of an average of $6.93 a bushel this year, while Iowa-based broker US Commodities has forecast that prices will not fall below $5.90 a bushel.

'Cannot be bullish'

However, bearish ideas on wheat futures gained support from Commonwealth Bank of Australia, which forecast a "weak outlook" for world prices, given near-record inventories and the prospect of a "strong" harvest this year, "based on the relatively benign northern hemisphere weather".

"The only thing that wheat prices have going for them is that corn and soybean prices remain strong – in part because of low stocks in the US and current production uncertainties in South America," CBA analyst Luke Mathews said.

"But if South American weather improves corn prices will fall, taking wheat prices lower too.

"Given such a supply situation, we cannot be bullish world wheat prices over the next 18 months."

'Supply deficit'

ABN was more upbeat over prospects for cocoa prices, which are recovering from multi-year lows set last month in both London and New York futures markets.

A forecast decline of 8.7% go 3.88m tonnes in world output in 2011-12 "points to a supply deficit".

This, coupled with concerns about weather in West Africa, the main producing region, would allow prices "to gradually increase" to average $2,500 a tonne over 2012, down some 15% year on year, but above forecasts from the likes of Standard Chartered.