Here it is in a nutshell: Prices of grains and cotton have skyrocketed year to date. The United States Department of Agriculture's (USDA) report released Thursday stated that corn and wheat prices have doubled in the past year. Soybeans were up 50% and cotton was up 155%, as reported in the Wall Street Journal.

What has caused these sharp increases? The key mover has been exports. China, India and countries in the Mideast are stockpiling grains over fears that they will not have enough to feed their people. Corn in storage fell 15% on March 1. Corn has been hit doubly hard because 40% of it is used for ethanol production and a large amount goes for livestock feed.

This year get ready to open your wallet wider and expect higher credit card bills for the basics like food, clothing and energy. You are probably wondering what is going on. While you weren't paying much attention, the price raw commodities surged in 2010. Corn, sugar, wheat, cotton, coffee and soybeans prices soared last year, as reported in the Wall Street Journal.

A confluence of factors pushed prices up. We had and still have demand explosion from China and India. The United Nations Food and Agriculture Organization's monthly food index which monitors a basket of commodities including meat, dairy and sugar rose for the sixth straight month to a record.

Chinese Vice Minister of Commerce, Wang Chao, led a business delegation that signed agreements with grain companies to buy just over 3 million tons of soybeans from the U.S., Reuters reported. The U.S. trading companies involved in the $1.8 billion deal are Cargill, Archer Daniels Midland (ADM) and Bunge (BG). No details about price and delivery were given.

When dealing with state-run companies, there is a protocol that must be followed. In this case, a government official, Chao, was present to sign off the deal with the two state-run grain companies allowed to import agricultural products into China.

Reuters quoted Federal Reserve Chairman Ben Bernanke as saying: "We're not in the business of trying to create inflation. Our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we'll all agree could also be worrisome."

Bernanke claims that inflation is below the Fed's 2% target. That's hogwash! Sure if you use the "core" CPI, which leaves out food and energy, that may be the case. Not to worry.

The grain markets are highly weather dependent. The slightest whisper of a weather change can move grains by large magnitudes. And with crops in Canada and China in danger of freezing, some grains recorded two-year highs.

Western Canada experienced frost last week, damaging the region's crops, including wheat, canola and barley. Similarly, parts of China also experienced freezing weather, threatening some grain crops there. Meanwhile, in Russia, the severe drought, which caused the country to ban wheat exports, is continuing. Russian farmers have planted 39% less winter grains this year, according to Bloomberg.

Rumors move markets, especially the commodity markets. The story of the day is a rumor that corn yields will be lower than forecast. The United States Department of Agriculture (USDA) originally forecast corn yields to be 165 bushels per acre. However, with the weather being hotter and drier east of the Mississippi, yields could come in lower, as reported by the Associated Press.

That sparked a rally in corn futures with the December contract up 17 cents to $4.64 per bushel (each one cent equals $50). Wheat prices are benefiting from the drought in Russia and Russia's export ban. December wheat futures shot up 27.5 cents to $7.41 per bushel. Soybeans also were higher by 26 cents to $10.35 per bushel for the November contract.

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?

With banking stocks getting crushed in the first few trading days of 2009, is there anywhere to hide?

For those looking to buy stocks, I provided a list of Top 10 Stocks for 2009. You won't find any financial stocks on the list.

Instead, I targeted a few themes that I believed would do well for varying reasons. One theme that I am particularly keen on is agriculture.

In a world that is full of fraud, bank collapses and historically low interest rates, I want to have some defense in any long recommendation.

The thing that makes agriculture so attractive is that the hedge fund maniacs turned this once boring space into the thrill ride of a lifetime. After a roller-coaster year, many great names in the space can be had for cheap prices.

One of the names on the list just got a whole lot cheaper.

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?

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."

Those businesses relying on feed commodities have certainly had to cope with a series of bullish sector trends in the past two years. Increasing demand for food in rapidly growing emerging market countries and the use of corn for ethanol have been the achieve price drivers.

Now, at least for the short-term, add weather concerns. Corn approached a record $8 per bushel Monday as the prospect of more rain on already-soaked Midwest farms increased the likelihood of extensive crop damage, Bloomberg News reported.

Soybeans, wheat, and rice also rose Monday at midday after the National Weather Service predicted that flooding in the Midwest will probably result in "hundreds of millions of dollars" in crop damages. Rice, a staple for about 50% of the world, rose 50 cents to $20.80 per 100 pounds. Soybeans traded up 19 cents to $15.79 per bushel.

Economist Glen Langan, whose specializations include agricultural economics, told BloggingStocks Monday the world needs a strong harvest, across the feed spectrum, from the United States and other nations. "A strong harvest would take some of the price momentum out of corn and wheat, in particular. Unfortunately, we may be headed for a sub-par harvest in the U.S. if current weather patterns persist," Langan said.

Corn rose to a record Monday on talk that heavy rain in the Midwest U.S. will cut supplies, Bloomberg News reported Monday. Corn for July delivery rose about 22.25 cents to $6.73 per bushel early Monday.

Prices also rose as traders sought corn as yet another hedge against inflation amid rising oil costs and a weak/falling U.S. dollar, Bloomberg News reported Monday. Demand for corn is also being bolstered by the use of the commodity as an ethanol source.

Oil fell $1.60 to $136.94 per barrel by midday Monday on profit taking, following its record two-day surge last week. Meanwhile, the dollar fell slightly against the euro and pound, to $1.5715 and $1.9756, respectively, but rose 1 yen to 106.03 versus Japan's yen.

The world is flat... for farming, too

Economist Glen Langan told BloggingStocks Monday those who find corn to be a curious inflation hedge are behind the curve.

Billionaire investor George Soros said Thursday that the boom in commodities is still in a "growth phase" despite the fact that prices for oil, wheat, rice, and gold have risen to records in 2008, Bloomberg News reported Thursday.

Soros said the relative stock market slump, combined with favorable, long-commodities demand, has prompted institutions to direct money to commodities, creating a "commodity as asset class" phenomenon, Bloomberg News reported. He added that increasing institutional involvement was creating a generalized commodity bubble.

Relative shortages

Moreover, demand for selected commodities (oil, rice, wheat) is so great, it's creating relative shortages, Soros added, which is only heightening the return on equity potential of commodities, Bloomberg News reported.

Rice, a staple food for about 3 billion people, is becoming a precious commodity as a result of rising demand -- a reality that's prompting some agriculture watchers to ask whether global grain producers will be able to keep the world adequately supplied amid solid emerging market economic growth.

China, Egypt, Vietnam, and India, which represent about one-third of global rice exports, curbed sales this year, and Indonesia did so as well, Bloomberg News reported Monday. Grain and food demand is increasing at above-trend rates due to solid economic growth in emerging markets. These regions are experiencing expanding middle classes -- a factor that historically has almost always led to rising per capita food consumption in the country where the growth occurred.

As a result, the price of rice and other commodities has soared -- rice hit $21 per 100 pounds on Monday, Bloomberg News reported -- and governments may face increased social unrest, given the pivotal role rice plays in many developing nations.

Rice hit a new all-time high, and corn neared a record on talk that commodities demand for grains will outstrip supply, Bloomberg News reported Thursday.

Rice, which is a staple food for about 3 billion people, surged 3.6% to $20.26 per 100 pounds Thursday, while corn for May 2008 delivery rose about 0.5% to $5.9875 a bushel, Bloomberg News reported. Government curbs on grain exports and bad weather are contributing to concerns that strong economic growth in emerging markets will cause demand to exceed the market's ability to provide adequate grain supplies.

The song remains the same

Economist Glen Langan told BloggingStocks Thursday the song remains the same regarding commodities, long-term. Although the commodities sector is overbought short-term, that short-term trading condition does not change the sector's secular, long-term fundamentals, which remain very bullish, he said.

"You could argue that a short-term bubble still exists in commodities like rice, wheat, soybean, and corn, so a word to the wise for any Johnny-come-lately traders," Langan said. "But from a fundamental and an economic perspective, grains and other commodities will continue to trend higher, after a correction. Decisions by China, India and others to cut rice exports speak to this trend. I don't see it ending in 2008."

The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities has more than tripled in the last six years, as global demand, led by emerging market growth, has outpaced supplies for both commodities and raw materials.