They are seen as barometers of macrosupply/demand shifts and provide forecasters with a “signal effect” as leading indicators of economic growth and inflation. However, each commodity has its own price personality that reflects both the structure of its unique supply/demand situation and the behavior or trading tactics of large participants in that market.

Until broad trends emerge, generalizations can be misleading. Consider the case of crude oil. Much time is spent analyzing the objectives and circumstances of sovereign producers that need money for social programs or, at the opposite end of the spectrum, frackers in search of liquidity to service their debt.

However, few economists have backgrounds in trading and this means they might not appreciate the possibilities for gamesmanship in price discovery. For instance, the pricing managers on the trading desk of a Persian Gulf crude oil producer could camouflage their activities by taking advantage of very low ocean freight rates to load tankers with unsold/unpriced oil and send it to pre–positioning areas offshore key consumer markets.

Instead of selling their crude oil into the current rally and retarding this initial price recovery, by holding back in anticipation of capturing higher prices they are increasing the potential supply that can be dumped onto the market at a later date. In this case, the unexpected arrival of unusually large crude supplies could precipitate fresh weakness driving prices all the way down to test old support levels. In the weeks/months ahead, this would look like crude oil continuing to rally towards a possible short term target of US$59 barrel(a Fibonacci 39% retracement of the previous price collapse) before turning down again and falling below $40!

Base metal prices are a different story. As non–perishable commodities, large producer inventories and speculative commercial long positions are often both funded by credit. Therefore, sometimes the relative speed, timing and size of supplies coming to market have been dictated by the confidence or lack thereof of bankers. Bankers are sensible types that read their newspapers and are known for nervously “calling” loans (demanding loan repayment) when they see recession in the headlines.

If recent employment statistics are a harbinger of economic weakness this summer, the “r” word may soon be upon us. Thus, although many base metals are cheap and already trading below their costs of production, panic liquidation selloffs and sharp “V” bottoms might still lurk in the future for some. If copper made a new bear market low below US$2/lb., it could still be well above its 2009 lows.

Among agricultural commodities, there are seasonal and geographic differences that lead to some degree of independent price action. Moreover, two countries, India and China, now account for about one third of the world’s consumers, and straightforward policy shifts can account for the timing of major demand surges and collapses.

This time around, soybeans are leading the turn and others like corn and wheat are following despite reasonably adequate supply estimates. In the current euphoria, caution is advised. It should be remembered that soybeans rallied by about US$4.40/bu. over a four month period in 2009, only to give it all back again in the next four months. This is not rare or exceptional behavior because they made another “round trip” in 2005 too. In both cases, those initial false starts were followed by months of slumbering prices before the next giant bull moves got underway. Could this be the case again in 2016?

In aggregate, understanding the speed and style of the turning process in commodity prices is essential because they influence economic forecasts and forward looking decisions. Given that the Federal Reserve has already begun to sound hawkish, an eventual broad upturn in commodity prices would influence monetary policy, interest rates and the equity markets. However, the near term impact may simply be an increase in two–way price volatility, up and down, before new trends fall into place later this year.

Harold AGJ Davis is the Author and Analyst at  www.prairiecropcharts.com