Corn, lifted by relatively short supplies, and cotton, helped by a Chinese market support programme, look top bets among agricultural commodities next year, offering investors the prospect for gains above 25%.
Corn looks set to return above $7 a bushel by the second half of next year boosted by strong demand from all three major consumers - livestock feeders, ethanol plants and importers, Commerzbank said.
Indeed, this will be enough to keep supplies tight even if the South American corn harvest escapes significant damage feared from this month's dry and hot spell, and if US plantings rise in 2012 to a 68-year high, as currently expected.
"Even if the corn acreage is being expanded, corn should remain in relatively short supply given the robust demand," Commerzbank said.
Corn prices will rise sufficient to regain a significant, if historically unusual, premium over fellow grain wheat, averaging $7.20 a bushel in the last quarter next year – implying gains of more than one-quarter for investors buying Chicago's December 2012 corn contract.
Battle for acres
Wheat, a substitute for corn in uses such as livestock feed, will continue to rely on corn for price support.
"At the moment, the view that a large harvest is also expected in 2012 is predominating," the bank said.
"Wheat is therefore unlikely to show any major price surges on its own," and even if being lifted by corn to $7.00 a bushel in the last quarter of next year, holds out the prospect of only marginal gains for investors, who have already priced most of this in.
Indeed, soybeans, which are in relatively short supply, will be a better bet, with their prices supported by the need to encourage farmers to maintain sowings –and supply prospects.
"The greater focus on corn is likely to slow the expansion of areas under cultivation for soybeans in South America and should lead to a lower soybean acreage in the US.
"All this should help shore up prices," Commerzbank said, forecasting Chicago soybeans averaging $13.00 a bushel in the fourth quarter of 2012, some 10% above the level that futures are pricing in.
Among soft commodities, cotton has potential for handing investors strong gains, with the bank forecasting that investors are being too gloomy in foreseeing New York futures prices remaining below 90 cents a pound.
Lower prices will, in dissuading farmers from planting the fibre, keep supplies in check, pointing to firmer values, which will also be encouraged by a policy in China, the top cotton producer, consumer and importer, of buying up supplies.
"State authorities are currently buying cotton on the domestic market at the equivalent of 140 cents a pound and thus at significantly higher prices than on the world market.
"Chinese manufacturers will therefore increasingly resort to the cheaper cotton on the global market."
The bank forecast cotton prices reviving to average 110 cents a pound in the last half of 2012 – also implying gains of more than one-quarter for investors.
"If the headwind from the financial markets abates and the global economy recovers as we anticipate during the course of 2012, the prospect of lower acreage would point to a cotton price recovery."
However, other soft commodities offered lesser prospects, with the market already pricing in the prospect of another year of tight coffee stocks.
Indeed, the 230.00 cents a pound that New York December arabica coffee futures traded at on Friday was above the 220.00 cents a pound that Commerzbank expects the bean to average in the last quarter of next year.
New York's December cocoa futures contract at least offers the scope for some gains, of about 10%, although offering some support by the likelihood of "robust" consumption, assuming the world economy recovers next year as Commerzbank currently forecast.
The forecasts for 2012 are the latest in a series from commentators, such as Goldman Sachs, Morgan Stanley and Societe Generale.