Forget Stocks, Bonds--It's The Year of Commodities

Corn has a tremendous domino effect on the economy.

Corporate bottom lines are impacted somewhat by higher corn prices, as many major food producers use corn and its byproducts, particularly high fructose corn syrup, to produce everything from snack foods to soft drinks. Livestock farmers who feed corn to their cattle, hogs and chickens are impacted, and prices of those goods are expected to rise even more over the next year.

Also, ethanol plants get hit by having to pay more for the principal product that makes their operations run.

All of which puts numerous areas of the economy in a precarious position should there not be a bumper crop of corn this year as acreage is reduced. That also would drive corn prices significantly higher.

"If we have a shock in corn yields that reduces them by 10 percent or something, that's going to create a tremendous amount of havoc, not only for ethanol but also for other demanders of grain," said Bruce Babcock, director of Iowa State University's Center for Agricultural and Rural Development. "That's the real problem. We are going into this year now without a stock inventory that will handle a drastic problem with yields."

In the meantime, cattle prices likely will be driven higher as farmers bring fewer and smaller animals to the market because of the higher feed costs. Consumers also will be hit in the form of higher prices at the meat counter.

"You can't raise prices by this amount and expect everyone to pretend it didn't happen," said Daryl Ray, director at the University of Tennessee's Agricultural Policy Analysis Center. "Margins in livestock feeding are fairly tight, so you're going to have to see the market price eventually cover that increased cost in feed."

Other non-agricultural commodities are booming as well. Coal traders are taking advantage of global supply issues, while London coffee, cocoa and sugar futures all hit multiyear highs Friday as more and more money is shifted out of stocks.