“While the long-term bull run in agri commodities remains, we expect prices across the agri complex to ease from their record highs, continuing the downward trajectory since mid-2011,” says Luke Chandler, Director of Agri Commodity Markets Research.

Prices need to stay at these higher levels through 2012 to encourage farmers to continue expanding production and keep pace with demand growth, and to allow global inventories to rebuild.

Rabobank believes that supply-side risks, both political and weather-related (US drought, La Niña patterns), have increased for 2012 with considerable risks for price and volatility levels.

“While prices are down for all agri commodities, they are certainly not out,” says Luke Chandler.

Prices are unlikely to plunge to the levels seen in 2008 and 2009, provided there’s no further deterioration in the macro environment.

“We do see upside, from depressed spot prices, for corn, wheat, soybeans, sugar and cocoa, as fundamentals reassert themselves and market participants continue to come to grips with the European debt crisis.

"We see downside to cotton and palm oil prices in the short term. In the livestock sector we expect higher live cattle prices and slightly lower lean hogs prices in 2012.”

In addition to the weather uncertainties inherent in agriculture, four variables will be critical for the agri complex in 2012:

• Economic slowdown
• Speculators and the US dollar
• Policy risks
• Capacity constraints

The annual Rabobank Outlook forecasts prices for wheat, corn, soybeans, soy oil, soymeal, palm oil, sugar, coffee, cocoa, cotton and livestock.

Given heightened uncertainty on the macro environment, this year Rabobank has decided to frame its forecasts for each commodity in base, low and high case scenarios.