I blogged this in February ... 2007:

This summer (Note: the summer of 2006 - BD), I seemed to remember reading that world grain stocks were at levels that sparked panic buying in the 1970s. I spoke with a friend of mine who's an agriculture expert. He said that was basically true, but agreed the market doesn't seem to be getting too excited about it.

However, one of the hot parts of the commodities future markets these days is agriculture. Some people are making big bets there will be a food supply crunch.

And in Eric Reguly's excellent Globe and Mail feature this weekend:

The dramatic price rises have been driven by factors absent in previous food shortages.

They include turning food into fuel, climate change, high oil and natural gas prices (which boost trucking and fertilizer costs), greater consumption of meat and dairy products as incomes rise (which raises the demand for animal feedstuffs), and investment funds, whose billions of dollars of firepower can magnify price increases.

Mr. Ofon, of Standard Chartered Bank, said rising demand in the face of production shortfalls does not fully explain the dramatic price increases. Investors are the other driver. They have discovered they can make money from food commodities as easily as they can in oil, gold or nickel. "Fund money flowing into agriculture has boosted prices," he said. "It's fashionable. This is the year of agricultural commodities."

But Mr. Currie of Goldman Sachs dismisses the theory that funds are pushing prices higher than they would be otherwise, though the funds can make prices rise and fall quickly in the short term. "The simple truth is that the funds don't take delivery of the commodity," he said in an interview. "Therefore they cannot sit on them and put them in silos. Therefore they can't affect prices over the long term."

In other words, the rally in food prices is being caused by demand exceeding production, resulting in dwindling food stockpiles. UN's International Fund for Agricultural Development, for one, assumes prices will stay high for as long as 10 years.