Who is in charge of regulating the wheat futures market? That agency is the Commodity Futures Trading Commission (CFTC) which oversees trading in the futures markets. One area of regulation is the number of open contracts any one person can have at any given time. The limit is 6,500 contracts.

So then what caused the price of wheat to go wild last year? It seems that the CFTC was complicit in that they gave exemptions for traders to go beyond the 6,500 limit. One trader was allowed to hold 53,000 contracts. Then to make matters worse, six traders ganged up and held 130,000 contracts. According to Bill Tomson, the value of these investments jumped "from an estimated $15 billion dollars in 2003 to around $200 billion by mid 2008.

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 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.

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.

More good news on the economic front to go along with Wednesday's announcement that non-transportation April U.S. durable goods orders rose on strong exports: rice future dropped to a two month low on increased global supplies, Bloomberg News reported.

July rice traded as low as $18.52 per 100 pound bag, down about 5.5% and at its lowest level since March 24, 2008. Rice has now declined about 26% since its record high in April 2008.

Wednesday's downward catalyst? Improving rice planting conditions in Asia and the United States, along with falling wheat prices in the U.S. Rice is a staple for about 50% of the world's population. The U.S. Department of Agriculture announced Tuesday that 72% of the U.S. rice crop was in good or excellent condition, up from 65% a week earlier. Further, wheat also fell to as low as $7.40 per bushel, which is 45% lower than the February 2008 record of $13.50 per bushel.

Shortages not likely

Economist Glen Langan, whose specializations include agricultural economics, told BloggingStocks Wednesday the food supply data points do not negate the two macro trends driving grain commodities higher -- rising developing world food demand from expanding middle classes and institutional investors chasing outsized equity returns -- but they do suggest one battle is being won: the battle over shortages.

Don't blame agricultural economists if they're feeling somewhat befuddled right now concerning wheat.

After two years of record price increases among grains -- including wheat -- and amid a global commodities price surge, and more than a month after predictions of wheat and bread shortages capable of producing social unrest, the U.S. Government is now predicting a global wheat production recovery for 2008.

U.S. wheat production to rise

The U.S. Department of Agriculture's latest estimate predicts that 2008 world wheat production will increase considerably, including an 8% increase in U.S. production to 656 million tons.

The USDA said good weather and record-high prices that have increased incentives to plant and farm effectively are the primary factors behind wheat's expected large harvest this year, Reuters reported Wednesday.

Wheat traded down 22 cents at $7.73 per bushel in Wednesday afternoon trading. Wheat has declined more than 20% since hitting a record-high $12.82 per bushel on March 12, 2008.

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.

Four well known CEOs weighed in on CNBC's Squawk Box, giving their particular insight on economic conditions one day after the Federal Reserve made yet another basis rate cut. Each of the four Chief Executives acknowledged the tough going in the economy, yet each also sought to inject a thread of optimistic patience into their commentary.

Mike Jackson, CEO, Auto Nation Inc. (NYSE: AN), came to the defense of Reserve Board Chair Ben Bernanke. While admitting that the chairman may have crawled blindly into what is now mostly economic turmoil, Jackson stated: "...I think he absolutely has it right now. He's got to be on full flight recession mode, and we'll worry about the dollar, and commodities and inflation later." Personally, I think Benanke should be making moves to protect the consumers and their dollars first, and let inflation take care of itself until the consumer sector is back up to speed.

Wilbur Ross, CEO, W L Ross & Co. Played the most obtuse card stating: "My own opinion is that it's just more of the same volatility." More of the same volatility? Yeah the economy is volatile ... DUH!

The commodities fad took a major step toward becoming an investment trend when investment giant Calpers -- the $240 billion California Public Employees' Retirement System -- announced it may increase its commodities investments 16-fold to $7.2 billion through 2010, Bloomberg News reported Thursday.

Calpers, the largest pension fund in the United States, said it would hold between 0.5% and 3% of its assets in commodities. Last year the fund invested $450 million in commodities.

Strong emerging market growth, particularly in China and in sections of Latin America, has created a bull market in oil, commodities and raw materials, and many economists say these assets are likely to outperform both inflation and selected investment classes in 2008, and possibly for a longer time period.

The Standard & Poor's GSCI index of 24 commodities is up 10% so far in 2008, following a 33% gain in 2007. Meanwhile, the Standard & Poor's 500 Index of stocks is down 6% this year, while U.S. Treasuries have netted a 2% return.

As commodity indexes surged to record highs Tuesday, an economist and analyst offered time-tested advice on the macroeconomic and portfolio implications of the market's latest investment obsession of the moment.

Economist Glen Langan told BloggingStocks Tuesday that the steep climbs in soybean, wheat, platinum, coal and gasoline all speak to, for the most part, a secular trend that the world's major economic regions will have to address at some point: rising commodity prices that outstrip the developed and developing worlds' ability to absorb those price increases.

Langan said demand for commodities and raw materials remains above average, even as prices have risen, due to strong emerging market economic growth. Typically, after extended bull runs, either demand recedes or prices drop. Prices, so far, haven't dropped. The UBS Bloomberg Constant Maturity Commodity Index gained as much as 2.8% to 1,441.593, the highest ever, Bloomberg News reported Tuesday. "So unless we've suspended a law of economics, growth in these regions has to slow, at least somewhat," Langan said.

First oil. Then copper, then lumber, and coal. And now grain.

The solid economic growth in the world's emerging markets that's caused oil / coal and commodities prices to surge is now fully hitting the grain market.

So much so, that some food producers are calling on the U.S. government to restrict exports due to soaring prices for grains they use to make cereal and other foods. Meanwhile, some farmers are asking the U.S. Government to ease restrictions to enable farmers to plant more acres, The Wall Street Journal reported Thursday [Subscription required].

For food producers, the issue involves limiting a major operating cost. During the past year, spring wheat has risen to an astounding $17.63 per bushel, up from about $4.90 a year ago. Flour, which used to cost about $15 per 100 pounds, now sells for about $45-48 per 100 pounds. Food producers say prices are increasing so fast, they can't pass along price increases quick enough to keep up.