FACTBOX; Why grain prices are at record highs

(Reuters) - Grains prices set record highs this year that helped to pushed up prices for food items like cooking oil, bread, cereals, chicken meat, beef, milk and eggs.

Here are the main reasons behind the rise in grain prices.

BIOFUELS

U.S. legislation passed last year would require U.S. gasoline supply to include 36 billion gallons of renewable fuels by 2022. About a quarter of the U.S. corn crop will be used to produce ethanol.

Some 2.95 billion pounds of soyoil will be used to produce biodiesel.

LIMITED FARMLAND

The finite amount of farm land available for crops in the United States, the breadbasket to the world, means farmers will plant crops that give them the best returns. Last year, farmers planted the most land to corn since 1944 as demand from the ethanol sector boosted prices. This year, farmers are forecast to raise their soybean seedings by about 18 percent to 75 million acres. To do this they will plant less corn. About 86 million acres of corn are expected to be planted this spring, down from 94 million acres in 2007.

WEAK DOLLAR

Most agricultural commodities are priced in dollars. The dollar's weakness against major currencies has been pivotal in boosting grain exports from the United States. This has reduced domestic grain stocks, which has helped to bolster futures prices at the Chicago Board of Trade. The weakness in the greenback also made dollar-valued commodities relatively cheap for investors.

SLOWER GROWTH IN PRODUCTION VS RAPID GROWTH IN DEMAND

The annual growth rate in the production of aggregate grains and oilseeds has been slowing, according to the U.S. Agriculture Department. Between 1970 and 1990, production rose an average 2.2 percent per year. Since 1990, the growth rate has declined to about 1.3 percent. USDA's 10-year agricultural projections for the United States and world agriculture see the rate declining to 1.2 percent per year between 2009 and 2017.

MORE MEAT NEEDS MORE GRAINS

As the demand for meat rises, especially from fast-developing countries like China and India, the demand for grain and protein feeds used to produce the meat grows proportionally more quickly. It takes 1.2 lbs of corn to produce 1 lb of chicken; 3.6 lbs of corn for 1 lb of pork and 6 lbs of corn for 1 lb of beef (all live weight).

DROUGHT

Australia was in the third year of a drought last year, which cut wheat production and slashed exports. Drought last year in Black Sea states, including Russia, reduced wheat production.

A hot and dry summer in Canada last year resulted in lower yields for wheat, barley and rapeseed.