By David K. Randall

Deere & Company predicted on its earnings call last week that agricultural commodities will lose ground this year.

The farm equipment maker estimates that corn prices will fall 17 percent through the 2012 growing season, while cotton prices will drop nearly 15 percent and wheat prices 10 percent. Higher crop yields and an increase in planted acres are behind the predicted decline in prices, Deere said.

Those declines are roughly in line with the findings of a Reuters polls of analysts in January, who said they expected U.S. corn prices to drop 15 percent to their lowest levels in three years.

Lower prices would be welcome news to supermarkets and retailers that have struggled to pass last year's big jumps in commodity prices on to consumers. Analysts say a modest decline in the prices of raw materials could boost investments ranging from teen retailers to emerging markets and help offset higher transportation costs as gasoline prices increase.

Here are a few ways to play the expected drop in crop prices this year:

SUPERMARKETS GET RELIEF

Traditional supermarkets may be one of the bigger beneficiaries of softer crop prices, analysts said.

That's because stores like Supervalu, Kroger and Safeway have lost market share to Wal-Mart Stores and Target since the recession ended in 2009.

By expanding their grocery offerings, these retailers have positioned themselves as a one-stop alternative for still-jittery consumers and have used their purchasing size to offer lower prices on items like meat and bread that traditional grocery stores have a hard time matching. Wal-Mart, for instance, now gets more than half of its revenues from grocery sales.

Easing food prices will likely change, or at least slow, that trend, analysts say. "The supermarkets are going to welcome this relief because consumers are going to go back to purchasing more items" as prices stabilize, said Andy Wolf, an analyst at BB&T Capital Markets.

Supermarkets will likely get two margin boosts, he said. First, companies won't lower prices immediately as commodities fall, allowing them to both make up for the steep jump in their costs last year and give them relief from higher gas prices.

Second, customers who are confident that a big price hike isn't around the corner will be more likely to trade up to higher-margin organic or premium products. Supermarkets have a greater selection of these higher-priced goods, which will help lure back any shoppers who switched to a lower-priced competitor.

The jump in margins would be especially welcome news to Supervalu, which has seen its shares fall 13 percent this year despite the broad market rally that has pushed the Standard & Poor's 500 index up 8 percent. The company, which offers a dividend yield of nearly 5 percent, saw its revenues slide 7.5 percent in 2011.

Investors have been skeptical on the stock, with 11 of the 17 analysts polled by Thomson Reuters rating the company a hold. But there are other fundamental reasons to like it beyond the expected boost in its margins. Supervalu will likely pay off $500 million in debt in 2012, said John Heinbockel, an analyst at Guggenheim Partners, which should help support its share price.

He has a price target of $8.75 for the company, a 25 percent increase from its current price of about $7 per share.

Other supermarket stocks look attractive as well. Kroger, which trades at a price to earnings multiple of 12, is down 1 percent for the year. It offers a dividend yield of 1.9 percent.

Safeway is slightly more expensive at 15.5 times earnings, compared with the roughly 13 earnings multiple for the S&P 500 index, and comes with a dividend yield of 2.5 percent. It is up 9 percent since the start of the year. The company is also popular with institutional investors, with large positions held by the $33.8 billion Fidelity Low-Priced Stock fund (FLPSX) and the $13.5 billion Perkins Mid Cap Value Fund (JMCVX).

BETTER MARGINS AT THE MALL

Clothing retailers should benefit from lower prices of cotton this holiday season.

Teen retailer Abercrombie & Fitch, for instance, told analysts last week that it expects its margins to recover "significantly" later this year as cotton prices fall. Analysts say that they expect the trend to reverberate throughout the consumer retail market.

"Overall the basic apparel industry has not handled the unprecedented cotton cost pressures very well, which is reflected in both results and stock valuation. Fortunately, we only have two more quarters of pain before industry trends should normalize and valuations improve," said Andrew Burns, an analyst at D.A. Davidson & Co., in a note to clients last week.

Burns suggested that investors buy Hanesbrands, the maker of the Hanes, Playtex and Champion lines, on dips now ahead of its excepted recovery in the second half of the year. He has a 12-month price target of $33 for the stock, a 21 percent jump from its current price of approximately $27.30.

Consider a retail and apparel focused ETF as well. The SPDR S&P Retail fund (XRT) weights each of the 95 companies its portfolio equally, giving investors broad exposure without concentrating their dollars in a handful of bigger names. That means that a small company like the $450 million market cap Brown Shoe Company has the same weighting as the $3.2 billion market cap Guess. The fund, which costs 35 cents for every $100 invested, currently offers a dividend yield of 1.4 percent.

Other options include the Market Vectors Retail ETF (RTH), which holds the 25 largest U.S. retail companies, and the Vanguard Consumer Discretionary ETF (VCR), which includes companies like Walt Disney and General Motorsalong with retailers. These related companies would also likely benefit if consumers increase their spending, said Robert Goldsborough, an ETF analyst at Morningstar.

EMERGING MARKET BOOST

Emerging market economies like China and India also stand to gain from lower agricultural commodity prices because food is a bigger portion of consumer budgets.

Any drop in food costs will spur economic growth as consumers "use their money to spend more throughout the economy," said Quincy Krosby, market strategist at Prudential Financial.

Lower corn, wheat and cotton costs also will help restaurants and consumer staples companies at home, she said. "The decrease in their input costs won't necessarily be passed along to the consumer, which will make margins more attractive," she added.

Consider a broad, and cheap, ETF to capture any gains in the emerging markets. The $54.3 billion Vanguard MSCI Emerging Market fund (VWO), for instance, costs 22 cents per $100 invested. The fund offers a dividend yield of 3.3 percent.

Income investors could opt for the $3.2 billion WisdomTree Emerging Markets Equity ETF (DEM), which offers a dividend yield of 6.9 percent. The fund charges 63 cents per $100 invested.

(Reporting By David Randall; Editing by Walden Siew and Tim Dobbyn)