…the gold bone is connected to the grain bone and the grain bone is connected to the…
    In their Daily Grain Comment on Thursday, analysts at AG Edwards helped illustrate the connectedness of energy prices and grains, something that was not typical just a couple of years ago. (pdf here?)
    Prices for commodities are increasingly rising and falling in unison. Investment funds have diversified their portfolios into commodities in recent years, looking at metals, grains and energy futures as more of a single asset class that can add balance to the traditional mix of stocks and bonds.
    Traditionally, gold and corn for instance, or crude and soybean oil, had little or no connection when markets moved. Now, its not unusual to see everything move togethe, as investment managers shift money into or out of the sector. What were unrelated markets can appear to have dependence, although there is plenty of capital shifting between individual commodities as well. It is not unusual to hear a grain trader cite gold, or oil futures as a feature of their markets.
    Ags and energy markets have also been linked by the increased use of biofuels made from farm commodities.
    Thursday was a case in point.
    Chicago Board of Trade corn, wheat and soybean futures had finished overnight trading with gains, thanks to a rally in crude oil past a record high $96 a barrel, gold was at a 28-year high and the weak dollar was helping grain exports.
    The overnight trend, more often than not, sets the stage for trading in the more active dayside session.
    So, traders, ‘called’ CBOT corn futures to open 2 to 3 cents a bushel higher, soybeans 7 to 10 cents higher and wheat 10 to 12 cents higher in keeping with the overnight trend.
    But as it got closer to opening time (9.30 a.m. CDT), doubts began to creep in. Why? Because crude oil began falling in a bout of profit-taking after it’s rise to a record high.
    And gold began retreating after breaching the $800-an-ounce mark. The stock market was down more than 200 points on its way to a 362 point shakeout for the day.
    CBOT grain traders changed their calls, now seeing corn opening mixed - either 2 cents a bushel higher or 2 cents lower. They scaled back the wheat call to 3 to 5 cents higher, and soybeans also 3 to 5 cents higher.
    At the opening bell, all three commodities opened down, and ended lower on the day, as did oil and gold.   

– K.T. Arasu