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A change seemed to come over the markets in mid January. In addition to a slackening of US economic readings, the commodity markets were also presented with a series of credit-tightening moves by the Chinese and persistent strength in the US Dollar. With the added burden of a large upward adjustment in grain supply in the January USDA Supply and Demand report, the overall attitude toward most physical commodity markets was punctured. In looking around at the general consensus of fundamental opinions in the grain markets, one certainly sees what would appear to be a very bearish view toward prices. Given the large U.S. crops, a very large South American soybean crop and talk of more 2010 acres available for corn and soybeans, the bear camp would seem to have all the marbles early in the crop year. Ultimately we think that demand will serve to chew through supply in many markets, but given the head start of burdensome supply of corn and soybeans and a less than stellar economic outlook currently, the bear camp should have the advantage in the coming weeks.

We would suggest that the February 5th Non-Farm payroll number, to be released after this writing, will be a very important reading on the state of the recovery. Traders looking back to physical commodity price action on February 1st and 2nd have to acknowledge a tightening, positive correlation between commodities and equities, and we think that it clearly highlights a “need” to see forward progression in the U.S. economy for certain commodity prices to find support. While markets like sugar, orange juice, lumber, the Yen and platinum might be able to fade a near term, outside market downward bias ahead, markets like soybeans, silver, hogs and gold might be in for additional losses into the end of February.