The recent gains in commodities reflect a boom in economic growth that has consumers from Chongqing to Chicago demanding more gold, grains and gasoline. The global emergence from the Great Recession is an obvious reason for the recent strength, and it lays the groundwork for 2011 to be an exceptional year for commodities. Yet, beyond an immediate uptick in demand are deep structural changes in the market, providing plenty of room for the bulls to run.

"The rally may not be for just a year. I think there are several years ahead, given the convergence of underinvestment in capacity, the rise of developing world demand and fears of inflation," says Dan Basse, president of agricultural research firm AgResource Co.

East and West

Scanning the landscape of demand, it is no surprise to see China as a major factor across the commodities complex. The nation is the world's largest consumer of copper, iron ore, natural rubber and zinc. In energy, as recently as the mid-1990s, China was an exporter of oil; today it is the world's second-largest importer thanks to demand doubling to 10 million barrels per day in just 10 years. It is not just China's factories that are gobbling up commodities, the country's people are, too. As China continues to embrace the benefits of world trade, there is burgeoning demand for agricultural products, so much so that U.S. Secretary of Agriculture Tom Vilsack in February predicted China may supplant Canada this year as the primary importer of American commodities. The reason is simple: the growing Chinese middle class eats as any other middle class does, with more beef and pork on their plates. With one-fifth of the world's population, but only 7 percent of its arable land, China is destined to be a buying force in world grains too. For the first time in recent memory, China imported corn and likely needs to boost buying to rebuild its strategic grain reserves.

While China dominates the conversation, sustained demand growth is coming from many other nations too. Indonesia, for instance, dropped out of OPEC in 2008, as domestic needs in the world's fourth-most populous nation transformed it from oil exporter to importer. Its demand for steel and related commodities is surging as well, supporting the infrastructure expansion its annual 6-percent GDP growth generates.

Elsewhere, Brazil - once a notable corn exporter - now consumes all of its corn supply to feed a burgeoning beef industry, Basse notes. "The BRIC countries are jumping up their beef demand rather quickly and, of course, if you are consuming beef or pork or poultry, you are consuming bushels of grain turned into that," he says.

While slower-growing, the United States remains the prime mover of the commodities markets. Adding to the natural demand from the improving American economy is the growing ethanol mandate. In the latest crop-year, the biofuel commanded a record 40 percent of corn crops. With the U.S. Environmental Protection Agency (EPA) set to expand the maximum ethanol-gasoline blend from 10 percent to 15 percent for many vehicles, crop demands will expand even further. Even Europe is legislating greater use of ethanol to reach aggressive fleet emissions reduction targets. The European Union, once able to meet its own ethanol demands, is now slated to be a regular importer from Brazil.

The recovering economy also means more pressure on metals, with the auto industry serving as a prime example. With 2009 U.S. auto sales estimated to be as much as 2 million cars below annual replacement requirements, the pent-up demand means quickening need for many metals. For instance, the average car uses 100 pounds of copper, plus palladium, platinum and/or gold for catalytic converters, as well as increasing amounts of aluminum - trimming weight to meet efficiency standards. Here too, China is an emergent force, having recently supplanted the United States as General Motors' main market.

Tight Supplies

"The reason why we are here is not just a China demand story, it is more a production problem," explains Rich Nelson, director of research at Allendale Inc., a commodity research advisory firm.

Bad weather is the main culprit in recent grains tightness. In particular, awful conditions slashed wheat crops around the Black Sea, with Russia's production down 33 percent in 2010, Ukraine's down 18 percent and Kazakhstan's plummeting 45 percent, Nelson notes. Other producers faced their own troubles, as crops in the United States and Argentina delivered less than estimated last year. This year, corn plantings are expected to rise, but experts expect inventories to remain tight in corn. Soybeans are not looking any better, as analysts at Minnesota's Country Hedging predict U.S. soybean stocks to fall to 35-year lows.

"We are on a collision course where world grain stocks are nearing historically low levels and we need the world's farmers to plant 26 million extra acres in this year ahead," AgResource's Basse says.

In most cases, planting more of one crop means transitioning out of another. However, with record prices in other crops - cotton, for example - such a shift could result in further price pressures elsewhere. Both Basse and Allendale's Nelson add that unless the weather cooperates to create nearly ideal conditions for farmers over the next plantings, the supply troubles may extend beyond 2012.

Unlike prior commodity price spikes in 2008 and the late 1970s, energy cartel supply restraints are not leading the way this time around. This fact has many people believing the gains in commodities may be far more sustainable than the short-lived bubble of 2008, when oil hit $147 a barrel and corn touched record highs. While oil showed tepid price growth in 2010 and inventories started 2011 at comfortably high levels, the lack of new oil field discoveries has set the stage for a severe energy crunch, one that will require the discovery of the equivalent of four new Saudi Arabias by 2030, according to the Energy Information Agency. It appears economic recovery will again pressure energy prices, moving producers and consumers further toward alternatives such as biofuels - which will stand to reinvigorate the commodity bulls once more.

"We could end up in some real dire trouble," Basse says of the real possibility of extending the current commodity crunch. "It's a year I haven't seen in my 30 years in this business."

Jim Rogers: ‘The Investment Biker' Rides High on Commodities

Decades worth of capacity neglect in commodities means the bull market has only started, says famed commodities investor Jim Rogers, author of Investment Biker: Around the World with Jim Rogers.

"There was very little investment in productive capacity for 25 years," he says. "Look at Asia and look at the world; we're using more and more of everything. Declining supply and increased demand means higher prices. It has been going on for thousands of years and there is nothing new about it."

The bear market of the late 1990s is part of the reason for the historical lack of new capacity, a situation compounded by the financial crisis of 2008, which stifled new investment just as producers were inclined to gear up, Rogers explains.

While lack of new supply is most obvious in metals and energy, market participants are making a mistake if they believe agricultural commodities are immune to underinvestment.

"Orange trees, coffee trees, cocoa trees take years to grow," Rogers says. "Even if you wanted to plant more wheat next year, the land has to come from somewhere and you're probably taking something else out of production - and then you worry about weather."

While Rogers garnered more popular notice as the self-styled "investment biker" and "adventure capitalist" traveling the world, he made his fortune with shrewd timing of the commodities markets.

"Commodities still have several years to go in a bull market," Rogers says. "Don't sell your commodities yet."