The cotton market is in a state of chaos. On Friday, March cotton on the ICE exchange closed at $2.1102 per pound, up the 7 cent daily limit, the Financial Times reported. The market opened limit up at $2.1102. That means that you cannot buy cotton even if you wanted to. The market is frozen.

Commodities are much different from stocks. Commodities are a zero sum game. Contracts usually last for three months. At the end of the three months, the longs take delivery from the shorts who deliver their cotton, and zero contracts are left.

March corn futures jumped 24.25 cents a bushel on Wednesday to $6.98. Corn contracts have risen 97% since June. You may be wondering why all this activity in the corn market in the middle of winter. The answer lies in a USDA report that said corn supplies are dangerously low. In fact, they are near the record low set 15 years ago.

What that means is that the corn stocks we have must last until our harvest starts in mid summer. Of the 12.4 billion bushels harvested last fall, we will have only 675 million bushels by Aug 31.To add more fuel to the problem, this new report is 9% lower than the USDA"s January projection, as reported in the Wall Street Journal (subscription required).

Two mega trends are converging on the grain markets. One has been poor growing weather, and the other is increased demand for food throughout the developing world. The combination of these two factors are driving grain prices higher and higher.

On Wednesday, the United Nations' Food and Agriculture Organization (FAO) issued a notice that severe drought in China's main winter wheat region could pose a serious threat to output, as reported in the Wall Street Journal. Some 5.2 million hectares out of the total of about 14 million hectares could be under threat from poor rainfall and low snow cover.

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.

All in all, Archer Daniels Midland (ADM) posted a stellar second-quarter earnings report. Net income came to $732 million or $1.14 per share. This compares to $567 million, or $0.88 per share in the same period a year ago. The Street was looking for $0.78 per share.

Revenues rose by 32% to $20.93 billion. The consensus estimate called for $17.5 billion.

Agrochemical company Syngenta AG's (SYT) stock has soared to new heights early this winter, but don't expect smooth sailing from here: the volatile stock is decidedly not for the squeamish.

Note: Don't consider Syngenta, first discussed here on June 16, 2009, at a price of $47.28, if you can't handle $2 or $3 stock drops in day.

A year ago, Syngenta's share price swooned with the pull-back in commodity prices, and came dangerously close to the $37 sell/stop loss.

"Despite more than doubling since we first recommended it just shy of two years ago, Sprott Resources (SCP), a Toronto-listed resource company, remains a strong buy, selling at a discount to a reasonable asset value," says Adrian Day.

The money manager and editor of The Global Analyst explains, "Sprott makes direct and indirect investments in the resource sector, frequently with new businesses which it subsequently takes public after nurturing them.

"One such is Orion Oil & Gas, of which Sprott still owns 78%, and remains undervalued. After more possible acquisitions, Orion could increase in value and more shares be spun off.

Tuesday was another down day for the stock market, with the Dow losing almost 180 points and the S&P falling nearly 20. Right now, this appears like a much needed and long overdue correction. No need to panic. In fact, if the U.S. economy continues to improve, the next few days could present great buying opportunities in the commodity markets.

This is because the Federal Reserve is determined to make sure that the world is awash in liquidity going forward. The sheer scope and size of these liquidity injections have an awful lot of investors concerned about the long-term stability of fiat currencies, as well as a number of sovereign bond markets. As this uncertainty continues to manifest itself, hard assets may see more substantial price increases.

Dole Food Is Doing Right

The USDA's press secretary released a statement a few days ago that reiterated the Obama administration's commitment to farming. Despite an interview with Reuters that said otherwise, he wanted to make clear "that it is imperative that we keep the farm safety net strong so that the American people can continue to have access to safe, affordable and abundant food." It's interesting that despite all the changes we've seen in response to market volatility and emerging technologies, the farming industry has been this country's constant source of growth and opportunity.

In the wake of the BHP Billiton's (BHP) failed $39 billion offer and its new hostile $40 billion takeover bid for Potash Corp. of Saskatchewan (POT), agricultural fertilizer companies, including CF Industries Holdings (CF), are starting to look pretty juicy to investors.

Fertilizer companies have been struggling during the past few years as cash-strapped farmers have been pulling back on their purchases, but the tide appears to be changing.

With rising prices for crops like wheat and corn, it is starting to look like it is going to be a really good year for U.S. farmers, which means they are going to have plenty of money to reinvest in new machinery and more fertilizer.

Monsanto (MON) is trading higher by 1.7% as I write this during the afternoon session. However, I'm not sure I'd be a buyer just yet. After checking out the story, I perceive a few problems.

According to an article over at Bloomberg BusinessWeek, the producer of agricultural products made $1.60 per share on a reported basis during the fiscal second quarter, a number that is representative of a 19% drop compared to last year's similar period. On an adjusted basis, net income calculated out to $1.70 per share, which was what the analysts had projected.