The sharp increase seen in agriculture prices since late 2006 is simply a function of underlying fundamentals. Specifically, it is robust demand growth, coupled with the inability of supply to respond sufficiently in the near term, that has contributed to tightening inventories, sending corn and soyabean prices to record highs. Weather has not been an issue until lately, and the impact of flooding on Midwestern corn and soyabean crops in the US presents a further upside risk to prices.

On the demand front, the most important feature has been growing income in the developing world, particularly in China, which has led to a corresponding increase in demand for protein: animals fed by grains, namely corn and soyabeans. Once a sizable exporter of soyabeans, China is now the world’s largest importer, expected to import 1.3bn bushels of the legume in the 2008-09 marketing year. China’s imports have increased by more than 200 per cent in the past five years.