Just before I left the TV station on Friday morning after taping USFR, the producer asked what I thought Al should ask the market dudes when the roundtable was taped that afternoon. (We tape in separate sessions for complicated reasons). At that time the CBOT had just opened on Friday.
My answer, "Why are corn prices so strong in the face of bearish fundamentals?"
And of course, Friday happened.
Here's one explanation.
The disconnect between the Baltic Dry and commodity prices is unusual. So too is the way that commodity prices have been moving in sync with each other in recent years. A recent paper by economists Ke Tang at Renmin University in China and Wei Xiong at Princeton University documents how commodity prices have become increasingly correlated with one another and with stock prices.Of course, we have been noticing this for a few years now, but this trend has deepened and extended to a durable phenomenon. It's complicating traditional timing schemes like moving averages, I have noticed. Often the sales "signals" last a few minutes at the open, or are wildly superseded shortly after being lost.
The reason, the economists argue, is that commodities have become increasingly “financialized” by the creation of exchange-traded funds that allow investors to easily trade in and out of them. So when investors get worried by things like what’s going on in Europe, commodity prices can fall sharply even though actual demand for commodities may be running higher. [More]
My own rudimentary efforts are increasing centered on trigger prices I can live with and forward sales. Also passive marketing to shoot for the average. Selling inventory in hand can become harder to execute in widely fluctuating daily markets. At least, I can look back to proof I freeze more often than I should.
Nor will the effort to fully comprehend all the forces at work and develop a grand theory of prices be a good investment of time, I think. These days weird stuff just happens, and we often can't decipher why post mortem, let alone real time.
Life's too short to become a slave to tick-by-tick randomness.