Economic conservatives, many Republicans among them, often talk about letting the market determine which energy source is best, and the need for consumers and businesses to access low-cost energy sources.

Well, applying that standard then, it's time to end the $5 billion federal subsidy for U.S. corn farmers who produce ethanol.

Suddenly, like lightening, the corn market drops to limit down. "Limit down" is the maximum the corn market can drop in one day. For corn it is 30 cents or ($1500.00 (each penny equals $50.00.) December corn traded at $3.6725 per bushel down the limit.

Why did this happen? Berry and Rees reported that today the Agriculture Department released its report on corn plantings which forecast 87.035 million acres up from 85.982 million acres planted in 2008. More acres mean more corn and more corn means lower prices.

Is there a big commodities rally underway? Let's look at the numbers:

• The Commodity Research Bureau index (CRB) of 19 energy, metal and agricultural prices gained 14%, the most since 1974
• Gasoline soared 30% in May
• Gold and copper also surged
• Corn and soybeans reached their highest levels since last September
• Crude oil has jumped 29%, the most since 1999
• Gasoline futures for June delivery surged 31%, the most since 2006
• Cotton futures were up
• Gold is at $980.00 per ounce
• Silver posted the biggest monthly gain in 22 years

So you are probably asking: What is fueling this rally?

Good morning! A New York Times article reports that cheap booze is seeing a nice sale spike as folks swap out premium or even mid-market brands for rotgut. Popov & Tonic, anyone? The Prince of Darkness over at Zero Hedge illuminates us as to the possibility that a major supplier of financing to rural electrical cooperatives could go dark, taking down dozens of utilities in the sticks with it. Maverick ratings agency Egan Jones began calling this a while back.

Commodity markets react violently at times. Yesterday was one of them: The USDA (United States Department of Agriculture) reported on Monday that the U.S. increased production for both corn and soybeans.

When it comes to the grain markets, USDA reports are viewed as the "bible." Farmers, grain merchants and exporters follow these predictions and plan their business decisions on these government reports.

For this crop year ending August 31st, the USDA predicted an increase in corn production of 21.4% to 1,790 million bushels and an increase in soybeans of 9.8% to 225 million bushels.

Before the market opened Monday, traders had expected just the opposite, that corn and soybean production would drop because of the late harvest. By the time the market closed, March corn futures were down 30 cents or $1500.00 and March soybean futures fell 83.50 cents or $4175.00 (each 1 cent equals $50.00).

Soybeans may recover a bit quicker than corn because the U.S. is a net exporter of soybeans to China.

If there is one lesson for the trader it is this: "don't take a position going into a major crop report." Surprises can be very painful and costly, especially if a trader long these markets Monday.

I wonder now, should food prices drop?

This post is part of a series featuring bargain stocks that are worth a look now. See more Cheap Stocks.

Every time I write about Monsanto Company (NYSE: MON), I get e-mails from vocal opponents of genetically modified foods. It strikes me as unusual, if only because there are so many companies out there doing business in an ethically questionable manner, and I'm rarely e-mailed about most of them. But, hey -- I can't blame anybody for being protective of the food supply.

If you're morally opposed to Monsanto, I definitely don't recommend you invest in it. Otherwise, there are valid reasons for taking a closer look at this agricultural chemicals firm. For example, on October 21, S&P Ratings hiked its long-term ratings on MON from "A" to "A+," citing the "expected continuation for favorable business trends ... a very strong market position ... and an impressive pipeline of new products that should underpin strong future earnings and cash flow."

Add sugar cane to the pipeline; Monsanto recently announced its intention to acquire Brazil's Aly Participacoes Ltda for $290 million. With sugar cane emerging as a popular alternative to corn for ethanol production, the acquisition makes sense. Carl Casale, the company's head of global strategy and operations, observed, "... we think that the biotechnology traits that we've invested in [corn] can bring a lot of value to sugar, as well."

Farmers whose families have been working the land for generations should be called in to advise new Wall Street traders every year. Because in farm life is the hardscrabble reality of boom-and-bust cycles. When prices went sky-high for wheat, corn and soybeans over the past years, you did not see growers spending their wealth on fast pickup trucks and fancy overalls; no, they kept telling reporters and economists that this wasn't going to last.

They were right. Wheat, which had hovered for years around $4 a bushel, had risen to $10 and is now flattening at $5; less than the current cost in fuel, seed and fertilizer to grow it. Farmers like Jimmy Wayne Kinder, who held back their wheat hoping to sell at the top of the market, are "kicking" themselves, and demonstrating that they, too, have an emotional connection to their holdings and have trouble letting go even in the face of overwhelming evidence that it's time to sell. As the prices fell, farmers waited for a rebound that never came.

Farmland was hot, too, with speculative buyers purchasing Midwest real estate for prices nearing $1,000 an acre, the record set in the 1970s. Now they're back around $500 and farmers are recalling lessons the traders never have time to learn: patience. If automakers, mortgage lenders, and Wall Street firms could learn this lesson; scrimping and saving in the down economies but not behaving like kings in the boom times; perhaps bailouts wouldn't be required.

It's interesting, too, that the article doesn't mention another reality of the farmers' market forces; as demand for conventionally-grown wheat, corn and soy drops, demand for organically- and sustainably-grown meats, produce and grains is rising. I plan to stand in line at 9 a.m. Sunday morning with my three boys for the chance at paying $60 for an heirloom turkey raised by a farmer I know; I've cut out breakfast cereal and alcohol from my budget so I can pay more at the farmer's market. Perhaps the American economy isn't collapsing, but returning back to a more sensible place; where friendly, interdependent, local, sustainable economies thrive and the global economy is a distant memory.

The irony of it is that food prices have dropped from record highs in the summer to fairly reasonable levels, but that could put some farmers out of business. Welcome to the world of deflation.

According to The Wall Street Journal, "A slowdown in new farmland development could hinder efforts to ease the global food shortage. Earlier this year, those shortages triggered riots from Haiti to Egypt to Pakistan and raised fears of permanently higher prices for basic foodstuffs."

Everyone assumed that a recession would move food prices lower or at least keep them at current levels. Budgets that were strained by high commodities prices might gets some relief which they will need as employment and consumer prices fall.

The problems may be especially acute in the US where some farmers have been making a fortune off corn due to feed demand and ethanol. Many of those farmers decided to expand, take on more debt, and buy new equipment. The price of corn has dropped like a rock over the last five months. How are those farmers going to keep up with the debt service? In many cases, they won't.

Get ready to pay more for an ear of corns and a loaf of bread. Farm failures are sending food prices back up.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Archer-Daniels Midland (NYSE: ADM - option chain) shares are rising today after the Department of Agriculture lifted its corn production estimates and lowered its corn price estimates. The news is good for ADM since the company is a huge consumer of corn. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ADM.

ADM opened this morning at $26.34. So far today the stock has hit a low of $26.04 and a high of $27.25. As of 12:30, ADM is trading at $27.09, up $0.75 (2.8%). The chart for ADM looks bullish and S&P gives ADM a positive 4 STARS (out of 5) buy ranking.

For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $22.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 22.0% return in just four months as long as HANS is above $22.50 at September expiration. ADM would have to fall by more than 16% before we would start to lose money. Learn more about this type of trade here.

The press is making a big deal about the extent to which oil and commodities prices dropped during July. The reporting is misleading.

According to the FT, "Commodities prices suffered their largest monthly drop in 28 years in July as crude prices nose-dived more than $20 from an all-time high of $147.27 a barrel." Prices on agricultural commodities fell sharply as well.

Oil at $125 is still disastrous for the global economy, and corn and wheat prices are still fairly near historic highs. In other words, the fact that these costs have come down is purely relative. Consumers and businesses cannot face the sort of inflation that even slightly lower prices create.

In terms of commodities' prices, it is much better to look forward than to look back. Oil production may have peaked -- that has not changed. Exports from large producing nations including Mexico and Indonesia have dropped sharply. Meanwhile, demand for oil may be off a bit, but developing nations, especially India and China, are not going to curtail their use of gas and diesel. Too much of their GDP depends on transporting goods for export.

The idea that agricultural product costs will drop much further is nonsense. Hundreds of thousand of farmers in Africa have been displaced by political turmoil. The U.S. and Canada can only produce so much. The competition between food and ethanol is not going away, and consequently, corn prices will stay high.

Near-record oil and commodities prices are here to stay. The underlying economics are simply too compelling for costs to come down much more.

Douglas A. McIntyre is an editor at 247wallst.com.

A few weeks ago, amid concerns about Midwest flooding, corn futures exploded. For a brief period, in fact, they nudged over $8 a bushel for May 2009, a four-fold jump over their 2006 prices, and were expected to go higher.

On June 30, however, a report by the Department of Agriculture put things into perspective. While the Midwest floods destroyed roughly 9% of the corn crop, this loss should be largely offset by the fact that farmers planted more corn than expected. Inspired by the rising prices of the grain and the promise of ethanol, farmers cultivated more than a million extra acres, which means that the U.S.'s corn supply should remain relatively steady.

This should be a boon to the ethanol industry, which lost no time in pointing out that the forecasted harvest should be more than sufficient to supply its needs, while leaving a sufficient quantity for food use. Of course, just because we are once again able to make corn ethanol doesn't mean we should. However, it still remains to be seen whether policymakers will ignore this scare or accept it as an indicator of the dangers that we face when we put all our eggs in one basket -- or all our ears in one bushel!

Despite being on the verge of the best first six months of a year in the past 35 years, there are some concerns we may see a reversal in commodities over the next six months. This would come as a result of higher oil, copper and other raw materials prices that could put pressure on consumer spending and lead to a growth in supply.

The negative effects have already started to become visible as gasoline demand has slipped in the U.S. due to high costs, while gold purchases in India saw a plunge of 50% year-over-year. "I've probably been positive for seven years and this is the first time I think there could be really a dramatic secular reversal, that it's not just a pullback" Michael Aronstein, president of Marketfield Asset Management in New York, stated.

The impact will not pass unobserved for airline companies, who will face a decline in the number of travelers over the Fourth of July holiday, following soaring jet-fuel expenses. Copper and gold demand are also facing weak levels after the price for copper reached $4.2605 a pound May 5, the highest ever, while the price for gold reached a record $1,033.90 an ounce March 17, and is expected to average $850 this year and $750 next year.

Sometimes during a crisis the United States rushes toward a solution, only to find that the action was not only not a panacea, it was, in fact, ill-conceived and harmful.

The late British Prime Minister Winston Churchill alluded to this when he noted that, "In the end, America will do the right thing . . . after she's exhausted all other possibilities."

That may very well be the case with corn-based ethanol.

Initially heralded as a renewable fuel that reduces foreign oil imports, it now appears that a powerful coalition is building against corn-based ethanol -- a problematic energy source, in economist Glen Langan's interpretation.

A ' tax dollar not well spent'

The U.S. Government (which means you, the taxpayer) heavily subsidies ethanol from corn production via payments to farmers, Langan said. "The tax dollar is not well spent, either from an environmental standpoint or an energy policy standpoint," he said.

There is a great debate in the halls of Congress, among environmentalists, and within the executive suites of big oil companies. Why not allow protected U.S. lands and offshore areas to be open for drilling of crude? Oil supply is tight. There are huge fields in some of the areas where companies are not allowed to explore.

A similar push and pull has begun over U.S. farmland. With critical crops destroyed by rain, the price of corn is at record levels and rising. The government has a policy to get farmers to set aside land for conservation. Perhaps at this point that is a bad idea.

According to The New York Times, one of the senators from Iowa "urged the Agriculture Department to release tens of thousands of farmers from contracts under which they had promised to set aside huge tracts as natural habitat."

Corn prices are being driven by high demand for ethanol and food poorly balanced against inadequate production. The flooding in the Midwest only makes that worse.

If the U.S. government wants to do everything it can to bring down food and oil inflation, it can set up a "drill anywhere" and "plant anywhere" policy. The streets of New York can be covered with the next wheat harvest. San Francisco Bay can be riddled with oil derricks.

Douglas A. McIntyre is an editor at 247wallst.com.

Food manufacturers promised Mexico's government on Wednesday they would freeze prices on more than 150 food products to help families cope with the rising cost of food, The Associated Press reported Thursday.

Mexico President Felipe Calderon said prices for goods including beans, canned tuna, fruit juices, coffee, ketchup and canned tomatoes will remain fixed until December 31, 2008, The AP reported. Calderon blamed rising food prices on surging global energy prices, food demand in China, and the use of corn for ethanol production.

Good intention, wrong method

Economist Glen Langan said he agreed with the need for food assistance for Mexico's poor, but disagreed with the mechanism.

"A more effective program would be a larger cash payment or food subsidy to citizens," Langan said. "The pricing mechanism should be kept in place, because it has many benefits. Cash payments or subsidies to poor residents are much more targeted and don't provide a benefit to those who don't need it. [Mexico President] Calderon did announce a monthly subsidy, 120 pesos [$11.60], but it isn't large enough."