Today’s commodities markets are being driven by a new report from Goldman Sachs Group Inc. (NYSE: GS) essentially reversing its ‘sell’ report of scarcely six weeks ago. Copper prices remain near $4/pound, but there could be some upside in store. And against all intuition, both corn and wheat prices are off today.

When Goldman’s commodities group said that it was time to sell crude oil, corn, copper, soybeans, and palladium, traders agreed in droves, sending prices for these and other commodities straight down.  Goldman has changed its mind now that prices have fallen some 15%-20% in the past few weeks.

For example, Goldman believes Brent crude should rise from about $110/barrel today to $120/barrel by the end of 2011. The logic is that recent lower prices for commodities reduced the risk of both demand destruction and inflation. Consumers are expected to maintain solid demand for crude, cotton, and other metals.

Goldman also thinks that ag commodity prices will remain high primarily as a result of weak inventories. The threat of weather-related supply shortfalls are offset by low stockpiles. If crops are adversely affected by the weather, then building stocks again will be delayed, maintaining high prices into next year.

One crop that may see some downside is soybeans. If corn plantings don’t reach expected goals in the US, farmers are likely to plant soybeans instead, raising the amount of soybeans harvested and putting some pressure on pricing. The bank also predicts that live cattle prices will end the year at $1.20/pound, about where they are today.

The takeaway seems to be that while prices may not shoot up again, they are surely not going to fall off a cliff. The recent fall in commodity prices should be made up, putting an overall upside into prices through the end of the year.

In another report on commodities, Barclays Capital says that the global supply of copper for 2011 could fall from its original estimate of 16.1 million metric tons to 15.7 million metric tons. The bank attributes about a quarter of the decline to “incidents”, such as labor disputes and other problems. The rest is set down to declining ore grades, tired mines, and higher costs.

A shortfall of 400,000 metric tons will also keep copper prices high. Some analysts have projected a 2011 average price of $4.45/pound, well above today’s price of about $4.01/pound.

For copper miners facing the problems of lower grade ores and old mines, the bright side is that the profit margin on copper is around 68% at a price of $4.29/pound, while gold’s profit margin is about 52%. The lower grade ores in copper/porphyry deposits are typically larger than higher concentrations and they offer longer mine life than the more concentrated ore bodies.

Competition for copper deposits is expected to rise as well because traditional gold producers are looking for another play to replace some of their depleting gold resources. Barrick Gold Corp. (NYSE: ABX) has offered to buy Canadian copper miner Equinox Minerals for $7.8 billion. BHP Billiton plc (NYSE: BHP), Freeport-McMoran Copper & Gold Inc. (NYSE: FCX), and Teck Resources Ltd. (NYSE: TCK) will be forced to compete for copper sources, driving costs (and prices) even higher.

The iPath DJ-UBS Copper Total Return Sub-Index ETN (NYSE: JJC) is up about 1%, to $52.88, in a 52-week range of $36.60-$61.69. The Global X Copper Miners ETF (NYSE: COPX) is up more than 0.5%, to $18.55, in a 52-week range of $10.00-$20.98.

Both corn and Chicago wheat are trading more than -2% lower today, which is counter-intuitive given the continuing weather woes that continue to threaten corn planting and winter wheat harvesting. Prices for corn and wheat appear to be falling as fund managers head for the exits on the riskier (and high-priced commodities) in favor of safer investments like the US dollar. The moves are a response to both the continued sovereign debt problems in Europe and the coming termination of the Federal Reserve’s QE2 program.

The Teucrium Corn Fund (NYSE: CORN) is down nearly -1.5% at $44.57, in a 52-week trading range of $23.79-$48.77. The Market Vectors Agribusiness ETF (NYSE: MOO) is up slightly to $52.85, within the 52-week range of $35.62-$57.93. The PowerShares DB Agriculture Fund (NYSE: DBA) is off less than -0.5%, to $32.02, within a 52-week range of $22.85-$35.58.

Paul Ausick

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