The dollar's reaction to US budget negotiations stands to be a major determinant of the course in agricultural commodity prices, Societe Generale said, while naming coffee - which set a two-year low on Tuesday - among its worst bets.
Growth in bullish positioning on the dollar helps "explain the broad sell-off seen in the commodity complex in October, on top of fairly neutral fundamentals", the bank said.
Commodities as a whole lost more than 5% last month, declines reflected in many crops including Chicago soybeans, while New York arabica coffee lost more than 10%.
And the dollar - strength in which makes dollar-denominated commodities less affordable as exports, so depressing prices – looks set to continue to play a major role in pricing.
'Strong implications for commodities'
"The US dollar continues to act as a barometer for global economic risk and less often reflects relative optimism over US economic growth," SocGen analyst Jeremy Friesen said.
"This has strong implications for commodities through year-end."
With the negotiations over the US budget, and the looming "fiscal cliff", set to dominate the economic agenda, one would expect this to be bearish for the US dollar, especially with the Federal Reserve likely to try to offset any actual fiscal contraction with US dollar supply expansion".
However, if US uncertainty is seen as a global economic problem, "markets may continue to bid up the dollar, potentially buying more treasuries with the expectation that the Fed will need to expand its treasury purchases".
'Critically poor condition'
Dollar aside, the bank's central expectation was for wheat to perform relatively well against corn and soybeans, boosted by supply threats.
"Specifically, along with crop concerns in the Black Sea region, US winter wheat crop conditions have started at critically poor levels for planting, with the USDA reporting the percentage of the planting acreage in November at their lowest in the more than 20 years of reported history," Mr Friesen said
With Black Sea wheat losing its competitiveness against European and US supplies, "boosting export prospects for the latter two", prices could "rebound near-term".
He was also upbeat for prospects for feeder cattle values, given the "looming short supply of calves", limiting supplies for placing on ranches or feedlots, and a factor which "should keep prices supported".
'Drag on coffee prices'
However, Mr Friesen named coffee among his short-term bearish bets, flagging the "relaxed concerns" over Colombian output, seen recovering from successive and poor seasons, and the onset of harvesting in some major producing countries.
"The start of the main harvest in Central American and Colombia and still elevated levels in Brazil may continue to weigh on prices," he said.
Further ahead, "strong robusta and arabica production in key production regions and weak US and European economic growth – key coffee grinding and coffee drinking regions – are likely to remain a drag on coffee prices into 2013".