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.

• WTI crude was up $3.67 per barrel to $101.67. Brent crude rose $2.10 per barrel to $110.62.
• In the grain market, June wheat futures rose 48-2 cents per bushel to $7.10 per bushel.
• Corn futures were up the 30 cent limit to $6.46 per bushel.

Except for the safe haven of U.S. treasuries and the U.S. dollar, most other commodities are getting slaughtered in the wake of the Japanese crisis.

Here are some prices of nearby contracts compared to five days ago:

• WTI crude is trading at $97.68 per barrel, down from $105.
• Wheat is at $6.89 per bushel, down for $7.89.

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.

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.

Gold prices have marched to a new high of $1,422.45 per troy ounce in London. This marks the fourth day of the gold rally.

The Wall Street Journal (subscription required) cited that the prime mover was continued worry over European sovereign debt defaults.Traders and investors are riding the bull higher and higher. To help the gold along, the U.S. dollar is weaker, sparking a rally in key commodities like oil and grains. Cotton is also up again.

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.

One of the broadest measures for commodity prices is the 19-commodities Reuters-Jefferies CRB Index. For October, the index was up 4.8% after an 8.5% gain in September, as reported in Investors.com.

Sugar and cotton started the trend, rising more than 20% each. Corn was up 17% and arabica coffee rose 11%.

Here is a story about hedges gone awry. It involves cotton farmers and cotton merchants, both of whom use the futures markets to hedge their product.

A hedge is a very simple tool. Let's say a farmer's cost for growing his cotton is 50 cents per pound. Now let's say the futures contract for December is 60 cents per pound. The farmer decides to sell December cotton contracts at 60 cents against his crop, even though it is not harvested yet. In normal times, he would deliver his cotton to the exchange at 60 cents and pocket the 10 cents per pound profit. Each penny equals $500, so he made $5,000.

China is the world's biggest importer of cotton. Last week, the U.S. department of Agriculture identified a "severe shortage" of Cotton in China. That was the trigger for a buying spree in cotton like no other, the Financial Times reported. "We're just seeing blow-offs here that nobody can imagine," Herman Kohlmeyer, with brokers Michael J Nugent told the paper.

The buying frenzy started on China's Zhengzhou Commodity Exchange where prices shot up to $1.60 per pound. That move set off the rally in New York's ICE Exchange electronic trading, the FT reported. Prices shot up the 4 cent limit to $1.1487, just shy of the record of $1.1720 per pound set in 1995.

On the other side of argument, one which argues that market forces set the price, some cotton merchants themselves were trading aggressively; a little-used exchange rule suddenly required merchants to unwind sell orders; and financial investors, including pension and hedge funds, started to enter the market, which generated an eight-fold jump February 19-26 in net buying, The Journal reported, citing CFTC data.