Hopes for China will give commodities a "positive" close to 2012, Australia & New Zealand Bank said, even as doubts emerged in grain markets over investors' appetite, given concerns over the US fiscal cliff.

At Chicago-based broker RJ O'Brien, Richard Feltes, warned that, even if US politicians agree on a budget package and avoid the severe measures – the so-called "fiscal cliff" - due to come into force at the start of 2013, concerns over the alternative measures will depress investors' appetite.

"Uncommitted discretionary capital will be understandably cautious about investing in any asset class in the first half of 2013 until evidence emerges that the US economy is not materially damaged by White House's perceived mandate to raise tax rates," Mr Feltes, vice-president, research at RJ O'Brien, said.

"The implication for the grain markets is clear," he added, flagging the importance of supply or demand factors to support values.

"The negative ramifications for the US economy will require strong standalone fundamentals to take ag markets measurably higher next year as discretionary investment capital will not be flowing to the commodity sector as readily as in recent years."

'Particularly vulnerable'

ANZ acknowledged the "shadow still persists" of a "less than favourable outcome on US fiscal negotiations".

"Speculative positioning is extremely long in both corn and wheat markets, leaving them particularly vulnerable to bouts of negative financial market sentiment."

However, it forecast that the expectation of stronger Chinese demand in 2013" would offset in commodity markets fears over the US fiscal cliff.

"We expect commodity markets to finish the year [2012] on a positive but choppy note," the bank said expecting "prices to improve as investment funds front-run a better China outlook for 2013".

"The buzz of improving Chinese data should continue," reflecting growth which will, in agricultural commodities, see "strong import demand continue for grains", for which imports in the January-to-October period topped 10m tonnes for the first time for some 15 years.

"The restocking phase for sugar and oilseeds looks more complete," ANZ said.

'Bullish on grains'

The comments came as the bank made a "bullish" call on prospects for grain prices, flagging threats to Argentina's corn crop from the persistent rains which are slowing plantings, and to weather threats to wheat in the former Soviet Union and the US.

"Enough weather concerns exist short-term to keep grain prices risks skewed to the upside," the bank said, flagging reports that up to 25% of Ukraine and Russian winter wheat may be at risk of winterkill, thanks to warm temperatures which have ill-prepared crops for winter dormancy.

ANZ also recommended a trade of buying May soybean futures, hedged against a short position in the November contract, to exploit a movement in spreads between contracts the bank foresees to ration demand for the oilseed follow poor US and South American harvests in 2012.

"Strong US soybean crush and exports in the September-November quarter indicate prices are still not high enough, or spreads tight enough, to limit demand," ANZ ag commodity strategist Victor Thianpiriya said.

"The best chance for a rally in soybean spreads is early in 2013."

Expectations for softs

However, the bank made a "neutral" call on soft commodities, warning that Asian buyers are "particularly well covered by new production at the time of the year".

"Seasonally, prices are unlikely to fall as the market is most susceptible to diminishing seaborne supplies as Brazil's sugar exports fall away.

"However, many markets globally are also contending with new domestic production replenishing supplies and capping prices."

For cotton, prices look set, for now, to remain within the 6-cents-a-pound range they have trod since June.

A combination of uncertainty over China's plans for its huge cotton inventories "and the slowdown in the European economies is keeping participants in the textile pipeline cautious."