Grains look a better bet than soft commodities, thanks to their differing appeals in terms of Chinese imports, Australia & New Zealand said, in a report suggesting corn futures might yet set a fresh record high.

ANZ, in a report making forecasts for 2013, said that commodities "with the greatest leverage to Chinese demand, and an improving US backdrop, will be the strongest performers".

The assessment was based on a forecast that, while the global economy will grow "below potential" this year, "emerging economies are expected to remain relatively resilient, particularly China".

The US, the "best-placed of the main advanced economies", could see "activity expand at a decent clip in the second half of 2013", if its politicians can overcome disagreement over fiscal plans.

Corn to rebound?

Besides Brent crude, copper and palladium, the bank rated grains among its "top picks", and certainly its "preferred exposure" among agricultural commodities.

Technical analysis also suggested gains for corn futures, after Chicago's July lot "completed a classic correction" in retreating to $6.75 a bushel and losing 50% of gains from last year's rally.

"Momentum indicators are also supportive," ANZ said.

"Projections suggest gains through last year's $8.24-a-bushel high to at least $8.58-8.60 a bushel, if not a full move to $8.70-9.71 a bushel into mid-2013."

Chicago corn in August set its current record of $8.43 ¾ a bushel, on a spot contract basis.

Softs vs grains

Meanwhile, soft commodities "continue to be weighed down by surplus production", and face too the potential for relatively soft Chinese import orders.

"We anticipate weaker year-on-year import demand from China in sugar and cotton, but ongoing strength in grain imports," ANZ said.

The bank also recommended investors buy six-month, 25 delta options – puts in New York sugar and cotton and calls in Chicago corn and wheat.

It also suggested an outright sale of cotton, given China's huge stocks, estimated close to 10m tonnes, and terming prices above 77 cents a pound as "overvalued".

'Rumours of quality problems'

The comments came as cotton extended a recent recovery, with New York futures for March rising 0.5% to 76.62 cents a pound as of 07:00 local time (12:00 UK time).

"It is above all the fear of continuing drought in key growing regions of the US, especially in Texas, that is keeping the market on tenterhooks," Commerzbank said.

"What is more, Chinese cotton imports soared by 75% month-on-month in December," amid talk that much of the crop was of inferior grades.

"Although China is releasing cotton from its reserves, rumours of quality problems are circulating which may prompt some spinning mills to import higher-quality cotton," the bank said.

However, with world cotton stocks still expected to end 2012-13 at a record high, further prices looked more difficult for now.

"For the time being, the high international reserves are likely to limit the upside price potential."