Analysts and fund managers wax lyrical about the favourable demographic and climatic trends underpinning soft commodities. Population growth, rising demand from the economic powerhouses of Asia and the increased incidence of drought and flood augur well for farm product prices.

But one wonders whether some investors now pumping billions into this long neglected and suddenly fashionable corner of the commodities universe are also swayed by less scientific considerations.

First, there is the reassurance of what “softs” so plainly are not. They are not abstractions on an investment banker’s spreadsheet but familiar raw materials impossible to imagine the world doing without for even a day. Coffee, sugar, cocoa and cotton are simple to define and easy to understand. They seem a million miles away from the esoteric world of SIVs and CDOs, the investment vehicles that have burnt so many fingers since the credit crunch took hold. Investors perhaps have a touch of credit market fatigue and want to go back to basics.

Second, there is the reassurance of what they are - another kind of commodity, an asset class which has already produced barnstorming price performances from crude oil, gold, wheat and copper. It’s a flimsy theory, but if crude can rise tenfold in a decade, goes the thinking, why not palm oil?

The weight of dollars piling into commodities and the speed at which the investment decisions are made are also significant. In the past, institutional investors switched slowly and incrementally from asset class to asset class. Today, hedge funds with enormous firepower can turn on a sixpence, overwhelming an individual commodity. Unlike more conventional asset classes such as shares and bonds, the capacity of the market is modest. And then there is the huge leverage intrinsic in commodity futures trading. It all adds up to extreme volatility.

The fundamentals do look good for softs, though during even the most madcap bubble a plausible investment case can always be made. But emotion and a reaction to past errors may also be driving this boom.

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