Societe Generale warned investors against betting on commodities in 2012 even as data showed speculators' sentiment already faded, with their positioning on many crops among the most bearish in recent history.
SocGen asset allocation specialists recommended investors take an underweight position on commodities, including agricultural ones, heading into 2012, warning of the threat to demand posted by economic slowdowns.
"With the probability of a hard landing in China estimated at 20% [by SocGen], one can only remain cautious on commodities," the bank said, countering a more bullish view of raw materials last week from rival UBS.
"All commodities should naturally be under pressure from the Chinese and European slowdowns."
Raw materials had already proved the worst performer, in local currency terms, over the past three months, falling 4% to lag even Japanese equities, which dropped 3%.
Nonetheless, SocGen forecasts imply that commodities, unlike Japanese stocks, will rebound, with positive returns ahead, if less so than those from emerging market, UK and US equities, besides many government bonds too.
The comments came as regulatory data revealed that managed money – a proxy for speculators - had continued, in the week to last Tuesday, to cut bets on price rises in commodities pretty much accord the board.
"With the exception of coffee, speculators become more bearish on all commodities," Standard Chartered analyst Koun-Ken Lee said.
New York coffee futures and options saw an increase of 1,800 contracts to nearly 11,500 lots in speculators' net length, as hopes faded for output from rain-beset Colombia, the second-ranked producer of arabica beans.
For the rest of the agricultural commodities complex, the increase in bearish sentiment was particularly marked, with speculators reducing net long positions in sugar and cotton to their lowest for more than two years, and extending net short holdings on cocoa and soyoil.
"The agricultural sector net spec length fell the most," Mr Lee said.
At Phillip Futures in Singapore, Lynette Tan said: "Money managers geared up their bearish bets on US agricultural commodities last week as prices sagged amid concerns about a weakening global economy cutting demand."
Paul Deane, at Australia & New Zealand Bank said the data, released by the Commodity Futures Trading Commission, showed "a further washout in specs".
Rabobank analysts said that speculators' "net long position across the [agricultural] complex fell to the lowest level since June 2010 - 281,705 contracts".
In Chicago soybeans, the liquidation meant that speculators were net short of the oilseed for only the second time in the last five years, and by the highest amount, of 8,622 lots.
In wheat, managed money, a proxy for speculators, increased its net short by 13,700 lots to more than 50,000 contracts, the highest since readily accessible data begin in 2006.
Indeed, the degree of short holdings may make speculators wary of adding further such holdings, for fear of being caught out by a wave of position covering on upbeat news.
"Traders are mindful of the short position in Chicago and the possibility of a short-covering rally," Dave Lehl at Benson Quinn Commodities said.