Costly food? Investors only partly to blame

By Barani Krishnan

NEW YORK (Reuters) - High food prices around the world? Blame -- at least in part -- the investors who moved their money into commodities in the past five years, looking for better returns than they were getting from stocks and bonds.

Global investment funds saw the potential for profits in commodities outstripping those from the stock market, and from 2002 started diving into oil, followed by metals and then grains.

This move was fuelled by falling interest rates in major economies, which makes fixed-income investments less attractive, and a weak dollar, which tends to drive up the price of dollar-denominated investments such as most grains.

This in turn attracted investors with little or no connection to the grain market, often labelled as speculators, who took corn, soybean and wheat prices to a whole new altitude.

In March, corn futures hit a record $5.88 a bushel and soybeans $15.86-3/4 on the Chicago Board of Trade, the benchmark for world prices. CBOT wheat peaked at $13.49-3/4 a bushel in February.

Stung by high transportation costs from record oil prices, food makers have passed some of the high crop prices to consumers, leading to protests in many countries. Some nations have even withheld grain exports to guarantee domestic supply.

Investors say high prices are supported by fundamental supply-and-demand factors like a higher-protein diet in emerging economies like China, demand for biofuels made from corn, soybeans and palm oil, and drought in some important grain exporting nations. But investors bear at least some of the blame, economists say.

"The idea is there are a lot of new players in the commodities futures game and those new players don't necessarily have a vested interest in the market beyond the speculative interest," said Chad Hart, an agricultural economist with the Center for Agricultural and Rural Development at Iowa State University.