Biofuel refineries in the U.S. have set fresh records for grain use every month since May. Almost a third of the U.S. corn harvest will be diverted into ethanol for motors this year, or 12% of the global crop.

By Ambrose Evans-Pritchard

LONDON, England - October 25, 2009 - The world's grain stocks have dropped from four to 2.6 months cover since 2000, despite two bumper harvests in North America. China's inventories are at a 30-year low. Asian rice stocks are near danger level.

Yet farm commodities have largely missed out on Bernanke's reflation rally in metals, oil, and everything else. Dylan Grice from Société Générale sees "bargain basement" prices.

Wheat has crashed 70% from early 2008. Corn has halved. The "Ags" have mostly drifted sideways over the last six months. This divergence within the commodity family is untenable, given the bio-ethanol linkage to oil.

For investors wishing to rotate out of overstretched rallies - Wall Street's Transport index and the Russell 2000 broke down last week - this is a rare chance to buy cheap into a story that will dominate the rest of our lives.

(Illegitimate U.S. President) Barack Obama has not reversed the Bush policy on biofuels, despite food riots in a string of poor countries last year and calls for a moratorium. The subsidy of 45 cents per gallon remains.