The revival in commodity prices, which has caught out hedge funds this year, will continue into 2010 as economic growth in industrialised countries catches up with that in developing nations, Barclays Capital has said.

Among agricultural commodities, corn and sugar looked the best bets, with both supported by demand from a recovering ethanol sector.

The bank said it disagreed with assessments that cheap money was behind a flood of commodities investment it pegged at a record $60bn this year, taking the sector's assets under management to $250bn.

"Those increased flows [are] the result of a period of lower prices and improving fundamental conditions," BarCap analyst Kevin Norrish said.

This scenario would run into 2010 as countries clubbed within the Organisation for Economic Co-operation and Development, including Australia, Canada, the UK and US, reversed an "extremely cautious" approach to rebuilding inventories.

'Unrealistic and apocalyptic' 

"The majority of the move up in commodities prices may now be behind us, but we would be cautious about discounting the possibility of further, perhaps significant, broad-based commodity gains in early 2010," Mr Norrish said.

"The initial price recovery for commodities therefore reflected little more than a backing away from some of the more unrealistic and apocalyptic scenarios for the global economy."

It was "very likely" that demand would continue to beat forecasts, he said, noting the scepticism even over this year's rally which had left hedge fund returns down 3.3% in the year to date.

"Hedge funds strategies in commodities have massively underperformed� and continue to do so."

He added: "With levels of inventories much lower than those prevailing during previous economic recoveries� the overall picture for the global economy and for commodity market fundamentals suggests further upward pressure on price levels across many different markets."

'Recovery in feed demand'

Among agricultural commodities, BarCap said it had a "constructive view on the grains complex", but particularly corn, thanks to low inventories in China and the US at a time of rising demand.

"Rising oil prices have improved ethanol margins, and this is not the fastest growing end-use sector [for corn]," Mr Norrish said.

"Strong demand from the ethanol sector and a recovery in feed demand should boost corn prices."

Demand from ethanol plants had also prompted the bank's "positive" view of sugar prices.

"With Brazilian supplies onto the global market dwindling as its harvest approaches the tail end, market focus is likely to turn again to the demand side, especially India, where import demand continues to grow due to its own poor harvest."