Agricultural commodities may recapture some of their investor appeal lost during the late-2012 sell-off, Societe Generale said, rating Kansas wheat and lean hogs as its top bets in the complex.

Funds have quit positions in many commodity types, partly thanks to a rush back into equities, towards which investors have their most bullish positioning since February 2011, according to a Bank of America Merrill Lynch survey.

"Bullish expectations on growth, profits and margins have finally translated into higher equity allocations," BoAML said, contrasting the clamour for shares with a mildly underweight position in commodities.

"The commodity complex is very much the forgotten asset class thus far in 2013," the bank said.

Out of favour

In exchange traded products, agriculture and energy were the two commodity classes to see net withdrawals by investors last month, Societe Generale said.

"Agriculture saw outflows in all but soyoil, sugar and coffee," the bank said, estimating the scale of the exit, which reflected a trend last year, at $50m, leaving $4.1bn in place.

Investors cut exposure to ag-based medium term notes too, to $4.6bn, implying a cut in net issuance of $500m over the month.

'Possible end to fund liquidation'

However, the bank, referring to exchange traded products, said that an improvement in fundamentals, evident in Friday's US Department of Agriculture cuts to estimates for domestic corn and wheat markets, could reverse the flow.

"The recent tightening of grain and oilseed markets and optimism on growth may see a reversal of both energy and agriculture [outflows] into January," SocGen said.

"Prices may also have a modest upward bias."

Separately, Paul Georgy, president of Allendale, said that "money flow into agricultural commodities seems to be one reason" for crop prices' more "positive" stance.

And rival broker RJ O'Brien said that "some evidence" of fund buying in grains, helping them outperform the CRB commodities index, may signal a "possible end to the steady fund liquidation that has prevailed since the mid-August peak in managed fund grain longs".

In Chicago futures and options, managed money, a proxy for speculators, has cut its net long in soybeans by one-third from the 2012 high, and in corn by two thirds.

In wheat, they have turned from a net long position of more than 80,000 contracts in August to a net short of 19,151 at the end of the year.

Top picks

SocGen recommended Kansas hard red winter wheat futures as one of its top bets for cashing in a potential revival in agricultural commodities, noting the dry weather fears of which have revived this week, presenting a "bullish" risk to prices.

It also recommended an "overweight" position in Chicago lean hogs, forecasting a revival in pork prices in China, the main consumer of the meat, which would improve the appeal of imports.

"Chinese imports of US pork have moderated, but should pick up again through 2013," SocGen analyst Jeremy Friesen said.

In the US itself, prices are "still not high enough to spur higher pig production" to offset extra demand pressure.

Worst bets

However, live cattle futures looked less likely to benefit, short-term, and were likely to "take a pause through January", now the Christmas demand surge is past.

"Slaughter demand should seasonally weaken through January, as we move past the peak winter demand period, while the mild US winter weather should continue to help boost weight gain efficiency and sustain seasonally elevated slaughter weights," Mr Friesen said.

He recommended an underweight also in cocoa, given an easing of concerns over weather in major producing countries Ivory Coast and Ghana.

"Current weather in West Africa remains positive for near-term supply while economic growth in Europe should continue to limit enthusiasm on the demand side.

"Though we could see a bit of a dead cat bounce, limited upside and continued near-dated contango suggests cocoa should remain underweighted against the broader commodity index through January."

Separately on Wednesday, chocolate giant Barry Callebaut forecast that cocoa prices would, short term, "trade on the low side of the well-settled range of the past 12 months".