This chart shows the price movements since the beginning of the year of the Powershares DB Agriculture Fund (NYSE:DBA). It represents a basket of futures contracts for commodities such as wheat, corn, soybeans and sugar. As Justice says, “Commodity after commodity has roared back to life, thanks to a combination of renewed inflation expectations, a crashing U.S. dollar, and newly bullish fundamentals.”

Last Thursday, we discussed at length the effects that inflationary expectations are having on the market. We said that Treasuries were a bad place to be and that energy-related commodities such as uranium and lithium were likely winners in an inflationary scenario. Justice points out that corn, soybeans and sugar are worth considering.

Corn prices surged to a six-month high,” Bloomberg reported earlier this week, “after the U.S. government said domestic demand will exceed production for the third time in four years, slashing reserves by 28%.”

Corn inventories are expected to fall even as the various demand sources for corn – food, livestock and fuel – rise an estimated 3.5% next year.

Soybean prices, meanwhile, recently hit seven-month highs on the CBOT (Chicago Board of Trade) after U.S. stockpile forecasts dropped. Beans were also boosted by word that the Brazilian National Agriculture Confederation, a major farm lobbying group in Brazil, would press for limited soybean acreage in the coming planting season to help keep prices firm.

And finally Sugar, not to be outdone, recently hit 34-month highs – their highest level in nearly three years – on “poor crops and robust demand,” according to the Financial Times. A failure of India’s local sugar crop was seen as a big price booster. “Swings in Indian sugar output, which move the country back and forth from exporter to importer, are a critical factor in global prices,” the FT reports.

“The price of lumber is a fair indicator of where the market is headed,” says Tom Dyson in last Friday’s DailyWealth. Lumber is an “on-demand” market. That means prices are set by real commercial demand (not the pie-in-the-sky nonsense we’re seeing in US equities right now). This from Tom:

Take the 2008 credit crisis as an example. The lumber price was the first to signal a bear market was coming. It peaked in May 2004. The Bloomberg Homebuilders Index peaked in July 2005. The Case-Shiller U.S. home price index peaked in July 2006. The credit crunch started in February 2007, when New Century Financial collapsed. And finally, the S&P 500 peaked in October 2007.