Crop markets are at the start of a "long-term bull run", Bank of America Merrill Lynch has said, joining investment bank peers such as Barclays Capital, Goldman Sachs and UBS in unveiling upbeat forecasts.

The worst recession for decades had not diminished the likelihood of economic expansion, coupled with a switch to more expensive diets in developing countries, providing "strong support" to demand for grains, meats and oilseeds.

The trend will put "upward pressure on prices in the medium term", Merrill Lynch analyst Francisco Blanch said in a note revealing Merrill Lynch forecasts for 2010.

And "of more concern" was that the crisis had not prompted a rebuilding in of food commodity inventories, most of which remained at "multi-decade" lows.

"The 2008-09 downturn in demand has not been sufficient to adequately replenish agricultural produce stock levels," Mr Blanch said.

"Thus, even though we expect the next few months to be dominated by decent harvests and stalling demand, we still believe that agricultural commodities are in the early stages of a long-term bull run."

Farm index

The note placed commodities, with equities, as best bets for 2010, highlighting the importance of economic recovery in boosting demand for commodities, with oil set to aveage $85 a barrel and potentially top $100 a barrel at the end of the year.

However, the report stopped short of making specific recommendations on crops, highlighting a Merrill Lynch index based on switching out of crops during periods of historic weakness, which are often associated with harvest periods which bring temporary jumps in supply.

"The objective of the index is to generate long-term outperformance by limiting exposure to negative carry periods for key crops in certain seasons," the note said.

Inflation risk weak

The bank also, unlike many other commentators, remained unconcerned about the risk of loose monetary policy prompting a spike in inflation, pointing to the weak ability of banks to feast on low interest rates.

"There is a transmission process, whereby excess bank liquidity causes a surge in bank lending, driving up spending and eventually leading to inflation.

"Today that transmission mechanism is stuck in neutral as banks rebuild their balance sheets. The recovery in bank lending will likely be slow and painful, so central banks should have plenty of time to sop up the liquidity before inflation becomes a real issue."