Agricultural commodities will at best "muddle through" the first quarter of 2012 as the global economic outlook remains very weak, Morgan Stanley said Tuesday.

The bank said the sector will suffer from headwinds to growth which are being caused by the ongoing European debt crisis, upcoming fiscal tightening in the US, and worldwide deleveraging that has lead to tighter emerging market credit.

However, Morgan Stanley said it remains bullish on grains despite such economic concerns, as food demand remains comparatively inelastic and constrained supply across many of the world's major exporters is likely to keep prices strong through the first half of the year.

Cyclical commodities are likely to see the most pressure from poor demand in the coming quarter, Morgan Stanley said, particularly cotton.

The bank is also still bearish on sugar prices, with the rebound in Northern Hemisphere production progressing largely as envisioned, reducing the call on constrained Brazilian supplies.

-By Michael Haddon, Dow Jones Newswires; 4420-7842-9289; michael.haddon@dowjones.com

(END) Dow Jones Newswires

January 17, 2012 09:08 ET (14:08 GMT)