Twenty of 26 traders, farm advisers and grain merchants surveyed Dec. 29 by Bloomberg said to buy both commodities. Corn advanced 1.6% last week, the third straight gain, and jumped a record 81% in 2006. Soybeans climbed 3.4%, ending the year up almost 14%.

Rising demand for alternative fuels is eroding supplies of crops normally used for animal feed or food processing. US production capacity for corn-based ethanol, already at a record, may double in the next two years, and the government said last month demand for biodiesel made from soybean oil may rise 17% in 2007.

US demand for corn used to make ethanol, a gasoline additive, will rise 34% to a record 2.15 billion bushels in the marketing year that began Sept. 1, the US Department of Agriculture said Dec. 11. Corn is the nation's biggest crop and is also used to make livestock feed and sweeteners.

The 110 factories now producing ethanol in the US have boosted their annual capacity by 12% in the past six months, to 5.3 billion gallons, according to the Renewable Fuels Association in Washington. An additional 6 billion gallons of capacity will be added in the next two years as 79 new plants or expansions are completed, the association said.

Soybean prices
The March soybean contract rose 23 cents to $6.9725 a bushel last week, the third consecutive weekly gain. Prices reached a 17-month high on Dec. 29 and have jumped 28% in the past three months, the most over a three-month period since October 2003.

High diesel-fuel prices also are spurring global demand for alternative energy made from vegetable oils such as soybeans, forcing processors such as Archer Daniels Midland and Bunge to deplete record global inventories to the lowest in more than 30 years.

There are 88 plants in the US that produced an estimated 250 million gallons of biodiesel in 2006, triple last year's production of 75 million gallons, according to the National Biodiesel Board in Jefferson City, Missouri.

Global use of vegetable oils in fuel will rise 17% in 2007 to 21.6 million tons from 2006 and more than double the 8.7 million tons used six years ago, the USDA predicts. That's almost equal to the entire food consumption of vegetable oil in China, the biggest consumer.

Declining inventories
Global inventories of vegetable oils may fall to the lowest since 1974 as tax incentives encourage more production of biodiesel made from rapeseed in the European Union and soybeans in the US, said John Baize, president of John C. Baize and Associates in Falls Church, Virginia.

"Global vegetable-oil prices could go through the roof in the next 12 months,'' Baize said. "If all the planned biodiesel plants were to come on line in the next two years, it would consume 45 percent of the exports from the top five vegetable oil exporters and leave little left over for food."

Corn and soybeans also may get a boost from increased investment demand in commodities, many of which have outperformed stocks and bonds.