This past year has seen the commodity market take off like a skyrocket as traders and investors have desperately tried to find an alternative to sickly stock markets. Many commentators have written about the “commodity supercycle” driven first by the demands of the Chinese economy and latterly by increasing world population, energy concerns, prosperity and uncertainty. Anything and everything loosely labeled a commodity is now seen as a one way bet! One of the reasons given for the fall back in the gold price was that when Bear Stearns collapsed so did its huge long position in the gold market! The gold price has subsequently risen and is now back over $900 an ounce.

However, while I would always advocate surfing any particular market sector and trend (up or down) the speed and extent to which commodity prices have risen is rapidly turning this sector of the market into the next “bubble”. A simple example. Farmers announced they were increasing plantings of soya beans by 18% and Wheat by 6%, while decreasing their planting of corn. This announcement caused soya beans to fall sharply, down to $11.35/bushel in the July contract. Just a month ago it was trading above $15.80. Wheat also fell, but corn soared. As stated in Wednesday’s Wall Street Journal, “Stocks of corn before the new harvest could fall to a decades-long low of 636 million bushels, compared with 1.4 billion bushels currently. If corn usage remains unchanged and if yields are the same as last year, he (Terry Roggensack of the Hightower Report) says ‘we’ll run out of corn.’”

If you are thinking of entering this particular market an understanding of the Commitment of Traders Report is essential. Whenever there is panic in the mainstream markets it is easy to be seduced into wandering into seemingly more predictable and surefire sectors. However, just remember that the market can only enrich itself with a constant supply of blood from its latest victims so just make sure it’s not yours.