Commodity collapse on the charts

Take a walk with me while I look at some charts putting this week’s commodities collapse into some perspective. I hope to take you from panic to a more relaxed sense of alarm.

The CRB Index compiles all the major commodities. Here’s what it’s done in the last week:

Ugly. Notice the gap? It’s hard not to feel the stuffing knocked out of oneself, looking at a chart like that.

But a one year CRB chart doesn’t show an unstoppable collapse – yet.

You could argue from that that commodities have found support in the line of resistance that held in March. So I don’t think from that you can yet write off commodities, or crops. The next few days will show whether the collapse continues, or stops.

How has ag in general fared? One week of the DBA – an index of the major crop commodities plus some meats – looks ugly.

But again, a one year DBA chart doesn’t look so bad:

Not as pretty as before, but not super ugly either

More of that possible resistance line stuff going on there, methinks. If it breaks through that, it could get really ugly. But it hasn’t yet.

Well, what we really care about is things like canola and spring wheat. Let’s look at canola on a one year chart: (the one week chart isn’t showing an ugly gap, so let’s jump to the one-year)

There’s that resistancy stuff again, and it hasn’t broken out of range of prices that haunted it all winter.

How about canola versus other crops, such as spring wheat, corn and oats? (Six month chart):

Canola's in the middle-low end of the pack, in red

Canola’s still 10 percent above where it was in early November. That’s not an end-of-the-world collapse yet, and as you can see, corn’s doing great. Oats has maintained itself at very high prices. Spring wheat hasn’t died.

How about canola versus other commodities such as silver, copper and oil? Here’s a one year chart for those:

Silver through the roof, and back down to the second floor

Silver has collapsed this week. Are you surprised? But those other commodities – both industrial commodities – don’t look end-of-worldy yet, and neither does canola.

So let’s pull silver out of there, because it skews the chart.

Not so bad, in the long run (in which we are all dead)

Oil took a gut-punch, but both canola and copper are still well above where they were a year ago.

That’s a cheery chart, because it shows canola having a lot of relative strength. It’s generally been stronger over the past year, and it didn’t suffer that sudden slump that shows up for both Brent crude and copper.

But let’s put corn – the crop commodities leader – into the picture:

Corn’s suffered hardly at all.

And that’s the point I want to leave you with today: this has been a scary week for the overall commodities market, but crops have held up remarkably well, in spite of all the downdraft. That didn’t happen in 2008.

So on the one hand we have dire predictions that the commodity rally was a bubble that has popped, and we will be sent to hell for believing it might last. But from these charts, I’m seeing signs that crops haven’t necessarily topped and reversed yet. That might happen, but it’s far from a sure thing.

I wouldn’t be surprised to see the crop markets peak in June or July, and maybe then collapse as the end of QE2 and China’s attempts to rein-in inflation bite-in, but unless all the other commodities continue to slump downwards from now on, there’s reason to believe high crop prices will continue for weeks, and maybe hit higher peaks.