Agricultural commodity investors are over-optimistic on prices of many crops, especially wheat, with values set to sink in the second half of the year, as "less negative weather trends" bolster supplies.

Only cocoa and sugar in the crop futures complex offer investors upside for holding to late 2012, according to Barclays Capital estimates which downgraded prices hopes for commodities including Chicago's big three – corn, soybeans and wheat.

"Weather risks to supply look less threatening for now," BarCap said, in comments which come amid signs of improved rains in dry areas of Argentina, and ideas of a decline in the La Nina pattern blamed for anomalies including southern US drought too.

"Beyond weather, other supply-side risks such as export bans by emerging market governments on food inflation fears have dissipated for now," the bank said, days after Russia lifted a threatened cap on grain exports.

Separately, Gail Martell at Martell Crop Projections said that "key indicators in the Pacific Ocean basin suggest pronounced weakening of La Nina over the past month, as sea temperatures warmed in the eastern equatorial basin.

"At the same time February rainfall has increased sharply in Argentina, where drought is typical weather with a La Nina in effect. "

'Year of two halves'

For corn, it would be a "year of two halves" as a boost to US supplies from higher sowings in the spring sinks a firm start to 2012 for prices.

Investors also seem to have the measure of soybean prices, which for November delivery traded nearly exactly at the $12.35 a bushel that BarCap forecast for the quarter.

Prices would gain some support from an "uptick in China's soybean imports on increasing demand", after the first decline for seven years in 2011.

"China remains structurally reliant on the global soybeans market in light of constrained land and spiralling consumption, which have made imports a necessity rather than a choice."

'Blight of record high prices'

However, the bank was downbeat on prospects for wheat prices which, at $5.90 a bushel, looked set to average in the October-to-December quarter significantly less than the $7.18 ¾ a bushel Chicago investors are counting on for December delivery.

"Ample feed wheat supplies and more-than-comfortable inventories indicate that price gains are unlikely to be sustained," the bank said, flagging US forecasts that US inventories will end 2011-12 at their second-highest ever.

The New York cotton market too, in pricing in 96.00 cents a pound for December futures, appeared overoptimistic, with BarCap forecasting a fourth-quarter average of 88 cents a pound.

"While cotton supply has gained markedly in response to price signals, global cotton demand has suffered from the blight of record high prices, as well as macroeconomic uncertainty."

'Moderate upside'

A better hope for buy-and-hold investors was cocoa, which will average $2,500 a tonne in New York, more than $150 more than the December contract is pricing in, helped by a return in the world market to a deficit, which the bank pegged at 48,000 tonnes.

"A combination of poor weather, lower cocoa prices, and disruptions to the distribution of farm inputs in the Ivory Coast is likely to lead to a 5.2% decline in global cocoa production in 2011-12," BarCap said.

"The fundamental outlook for cocoa still offers some moderate upside from current price levels."

For sugar, while production prospects looked "positive" for 2011-12, the demand outlook was brighter too, with lower prices encouraging consumption rationed during the earlier spell of elevated values.