Category: Commodities
Commodity Futures: Corn Up, Cattle Down?
Market correlations only work until they don't.
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| By Vadim Pokhlebkin |
Published: Mon, 28 Apr 2008 17:45:00 ET |
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April 28 (Bloomberg) – Feeder cattle fell the most in two weeks on concern that rising grain prices will discourage U.S. feedlots from expanding their herds… The price of corn, the main ingredient in cattle feed, has jumped 60 percent this year.
That was one of the explanations for Monday's (April 28) sell-off in Cattle futures. As usual, a cursory look at it would probably leave most people satisfied. But if you stop and think about it, you can't help but wonder – if U.S. cattle herds shrink, wouldn't that also shrink the supply in the Feeder and Live Cattle markets? So, couldn't Cattle prices have rallied on Monday instead?
They could have. However, there has been some negative correlation between Corn and Cattle prices lately. While it doesn’t hold true all the time, just compare these recent charts of Feeder Cattle, Live Cattle and Corn (as seen in the April 25 issue of Elliott Wave International's Daily Futures Junctures; online now; some Elliott wave labels erased for this publication):
As you can see, since late March-early April, as Corn prices fell, Cattle prices rose. But, "The manner and extent of the advance from the March low argues that the selloff [in Live Cattle] that began in August 2007 has ended," argues in his April 28 Daily Futures Junctures EWI's Senior Commodity Analyst Jeffrey Kennedy.
Does this mean that Corn prices have topped?
In our experience, market correlations only work until they don't. Before you make forecasts for one market based on the price action in another, consider looking at their Elliott wave patterns independently.
In the April 25 Daily Futures Junctures Weekly Wrap-Up section, you will find the latest graphic forecasts for 20 commodity futures markets. Here is how to get it risk-free.