Soft commodities remain a better investment than grains despite their large gains over the last year, with sugar holding the potential for price spikes while corn continues to "grind lower", Rabobank has said.

The bank lifted its hopes for sugar prices for each of the first three quarters of 2010, noting a "flurry of developments" - such as buying from Egypt, the Philippines and Pakistan, and concerns that cold weather has damaged the US crop – that had highlighted the shortfall in global production.

"With a number of importing countries running stocks down to a minimum, the stage is set for a very tight and nervous few months," Rabobank analyst Andy Duff said.

"The occurrence of one or more price spikes cannot be ruled out."

Fresh peak 

While production will likely to revert to beating demand in 2010-11, it would require a "substantial" rebuilding of world inventories to drag prices back to average levels.

Mr Duff's comments followed a forecast from Commerzbank that the rally could drive New York prices to 40 cents a pound.

'Unequivocally bearish'

However, prospects for grains and oilseeds look bleak, in particular for soybeans, which look set to fall to $8.50 a bushel in Chicago in the April-to-June quarter, some $0.75 a bushel less than the market is currently pricing in.

"The fundamental outlook for the soybean complex is unequivocally bearish."

Prospects for corn had also turned "bearish", after the US Department of Agriculture last month raised its estimate for American production in 2009-10, and with higher yield hopes making up for most of a drop in plantings in Brazil to the lowest levels since the 1960s.

Corn prices, which have dropped 15% since the USDA report, have "already done a lot of the work needed in terms of discovering additional demand," the bank said.

"But we maintain that prices should continue to grind lower throughout the first half of 2010."

'Conducive environment' 

Wheat prices also had "further downside" in the first half of 2010, thanks to robust global supplies, although the scale of losses already suffered meant that further declines should prove "limited".

"The fundamentals in sugar, cocoa and coffee continue to offer a more conducive environment for bullish price movements."