With traditional markets in the doldrums and Asian economic growth on a tear, commodities are among the hottest investments around. There's a case to be made that inflation will make positions in hard assets appreciate for the next several years, but I don't think that the rise in prices will be uniform across all raw materials.
The strongest bull market is likely to be in the grain complex. As more farmers abandon growing food in favor of corn–a relatively low maintenance crop that can be quickly turned to cash in the form of ethanol–the supply of wheat will continue to shrink. And as world demand for higher quality protein increases, there simply isn't enough grain to feed the cattle, hogs and chickens that the world seems to be craving.
This supply-demand dynamic pertains to meat as well. Cattle herds are being liquidated across the country due to higher feed prices. Eventually, higher prices will persuade cattlemen to increase inventories, but until that time expect to pay more for steak and hamburger.
Among the weaker stories in the commodities markets is the energy sector. It will likely be difficult for crude oil prices to stay at current levels if we are truly entering a recession. And considering the high weighting of energies in the ever-popular Goldman Sachs Commodity Index, stagnant prices in the energy pits could depress many commodity index-linked investments. Indeed, investors are advised to find other ways to play the commodities boom to get the most bang for their buck.
