Historical performance and supply constraints suggest that cattle, corn and soybeans will be top bets in the commodities complex in 2012 – albeit a year unlikely to prove vintage for raw material prices, Morgan Stanley said.

The potential for commodity price rises is "likely limited" given the "fragile state" of developed economies, the bank said, warning also over a further recovery in the safe haven of the dollar, encouraged by "risk aversion, deleveraging and global liquidity".

The bank said that "2012 will be the year of the dollar", which will appreciate more than 10% against the euro, the pound and the Australian dollar by next autumn, making dollar-denominated assets, including leading commodities, less affordable.

However, live cattle and feeder cattle futures look likely to do better than most commodities, boasting a historical record of outperformance in tough economic times, besides support from tight US supplies.

"Continued strength in US beef export demand, coupled with high feed costs and contracting feeder cattle supply all bode well for US cattle supply," Morgan Stanley's head of commodity strategy, Hussein Allidina, said in the latest of a series of 2012 outlooks, following on from Societe Generale and UBS.

'Upside to prices'

And corn and soybeans look even better bets, with prospects for the former looking best early in the year, before supplies from improved South American harvest, and a 2012 US harvest seen rebounding 10.7% to 13.6bn bushels, kick in.

"Tight US and global fundamentals leave us constructive on corn at least through the beginning of 2012 as larger livestock herds suggest higher US feed demand than is currently modelled by the US Department of Agriculture," Mr Allidina said.

Soybean prices will be supported by the need to retain acreage in the face of elevated corn values, besides by demand spurred by growing use in making biodiesel, in Argentina, and in the US where consumption by biofuel plants will near-triple.

"We see upside to deferred soybean prices - November 2012 contract and beyond - on the need to preserve US acreage against still-strong corn and cotton values."

The bank forecast an average Chicago soybean price of $13.50 a bushel next year, well above the $11.34 a bushel the market is currently factoring in.

Russia supply squeeze?

Morgan Stanley saw some upside to wheat too, pegging the average 2012 Chicago price at $7.00 a bushel, up from $6.58 a bushel currently, making the grain a relatively good bet.

But price prospects are better among higher quality wheats, which remain in relatively short supply after a disappointing US hard red winter wheat harvest this year and talk of Black Sea stocks running low.

"Sources indicate that Russia's high-protein wheat supply has begun to dwindle, owing to high early-season volumes shipped to milling customers such as Egypt," Mr Allidina said.

"If these reports prove true, this would be positive for US high-protein wheat in the second half of the marketing year and may lead to some additional widening in the Minneapolis–Chicago wheat spread, which has widened to nearly $2.50 a bushel."

Minneapolis trades hard red spring wheat which has a far higher protein level than the soft red winter wheat dealt in Chicago.

'Supply outlook is bearish'

And even wheat looked a considerably better prospect than soft commodities, for which sugar looked a particularly poor bet.

With Brazil's output proving less dismal than some had suggested, the impact of flooding on Thai production "limited" and bumper beet output in Russia, "now expect the 2011-12 global surplus to reach 6.5m tonnes", Mr Allidina said.

For coffee, growing supplies from Brazil and Vietnam, "the impending supply outlook is bearish, particularly with slowing global growth weighing on trade-up demand for arabicas out of the emerging markets".

Cotton prices are set to dip as a buying spree by China winds down from March.

"As Chinese purchases tail off we expect further weakness in world cotton prices, and perhaps even a stream of US export cancellations, as China's cotton traders seek cheaper regional alternatives."