Montreal, Canada

Even prior to the USDA's (United States Department of Agriculture) surprising forecast for crop yields earlier this month, the grains complex ranked as one of the worst-performing sectors of the commodities space since prices peaked in July 2008. Adjusted for inflation since 1980, corn, soybeans and wheat remain among the cheapest raw materials along with silver; only live cattle and livestock have performed worse over the last 30 years.

The long-term bullish argument for agricultural commodities remains compelling amid rising population growth and peak global food production. The world is outgrowing the Earth's food supply. As long-term population growth continues to threaten the viability and availability of food production, grain prices and other soft commodities are likely to rally and eventually hit new inflation-adjusted highs just like many base metals, energy-related products and several agricultural commodities have since 2002.

In the summer of 2008, prior to the collapse of commodities prices triggered by the credit crisis, food riots compelled many governments in the emerging markets to further subsidize important grains or increase purchases as harvests plunged because of drought in the Ukraine, Australia and Argentina – all significant exporters of coarse grains. That scenario, unfortunately, is likely to return in the near future because long-term crop yields won't satisfy rising demand.

Threatened by the long-term decline of crop yields, agricultural commodities are probably in the early stages of a secular bull market. If the world is not growing enough food and population growth continues to expand, then the math on this asset class is quite simple: higher prices.

But for now, the USDA has tamed the bull with almost record crop production forecasts for this year.

The United States is one of the largest exporters of grains, namely corn and wheat. Bad weather over the last several months resulted in expectations that harvests would trail demand. But the government has revised its forecasts and now claims farmers will yield a near-record harvest of corn, soybeans and wheat in 2010.

China, which is now among the largest importers of foodstuffs, saw its agriculture production peak back in the early 1950s. Over the last decade China has shifted from being a net producer of some grains to a net importer. The implications for commodities like rice and soy – main staples in China's diet – are bullish as demand continues to grow.

If oil, the industrial metals and gold have been all the rage over the last ten years then perhaps the next mania will engulf the grains. The supply and demand picture is supportive of a long-term bull market for most grains this decade.

From its all-time high, JJG, or the iPath Dow Jones AIG Grains Total Return ETN, is down a hefty 51%. The ETN, or exchange-traded-note, hit an all-time high of $74 in June 2008 and now trades at $36.

The chart for JJG, however, remains awful with a total breakdown now evident since earlier this month following the USDA's crop forecast.

But investors don't make big money riding momentum. The big money is usually made buying an asset that is distressed, unloved and in the gutter. When it comes to the grains it's hard to envision anything but a big recovery because weather patterns, Chinese demand and production challenges all point to rising prices over the long-term.

Have a good weekend. See you on Monday.