Since the beginning of September, copper and corn prices have fallen dramatically, with copper off nearly -35% from its 12 month high and corn off about -25%. Because both are often seen as leading indicators of economic growth, it’s interesting that this time the price of the two commodities may be following the economy instead of leading it.

Copper prices peaked in February, about a month behind copper miners Freeport-McMoran Copper & Gold Co. (NYSE: FCX), Southern Copper Corp. (NYSE: SCCO) and a little earlier than BHP Billiton plc (NYSE: BHP) and Rio Tinto plc (NYSE: RIO). The decline in share prices was gradual from about April through July, but beginning in August shares turned more sharply down, as did the price of copper itself.

Corn prices hit a peak in June, and are still about 20% higher than they were in October 2010. None of the big ag stocks are near that high except fertilizer maker Monsanto Co. (NYSE: MON), up 31% in the past 12 months. Archer Daniels Midland Co. (NYSE: ADM) shares are off -23% in the past year, Bunge Ltd. shares are off about -3%, Potash Corp. of Saskatchewan shares are down about -11%, and Mosaic Co. is off nearly -18%. Ethanol producers Valero Energy Corp. (NYSE: VLO) is up about 2%, while Pacific Ethanol Inc. (NASDAQ: PEIX) is barely breathing, off -96%.

The decline in the copper price began when orders from China began to cool off as a result of the country’s efforts to slow down its GDP growth. By some reports the country has an over-supply of housing that tops 65 million units. If the number is even half that, demand for copper in China could fall dramatically. And it’s possible to argue that a housing glut in China drove the copper price to new heights because construction in the US and other developed countries has stalled.

But the current global economic malaise is not entirely attributable to China. Eurozone sovereign debt and questions about the zone’s banks have pushed markets down hard and could be just as responsible for the falling price of copper as softer demand from China. In other words, copper could be following, not leading, a macroeconomic decline.

The falling price of corn can be attributed to better crop forecasts and the recent ‘discovery’ of more than 200 million bushels in US stocks has put even more pressure on corn prices. Unlike copper, though, corn prices get some demand help from a large alternative market. If corn is a leading indicator, then the effect of ethanol production, which consumes about 40% of the US corn crop, distorts its influence.

Ethanol production is highly profitable at the current price of around $6/bushel. Corn prices would have to rise to unprecedented heights over $9.50/bushel before demand from ethanol makers would start to decline. Even without the $0.45/gallon federal subsidy, corn prices would need to top $8/bushel before they would pinch the ethanol makers.

Something similar to the ethanol prop to corn prices doesn’t exist for copper. Some 70% of copper demand comes from construction and electrical/electronic industries. Of the remaining 30%, about 12% comes from the transportation industry and 9% comes from makers of industrial machinery. None of those sectors is large enough to prop up copper prices as ethanol props up corn prices.

The iPath Dow Jones-UBS Copper Subindex Total Return ETF (NYSE: JJC) is down more than -1.5% in the first half hour of trading this morning at $39.46, barely above its 52-week low of $39.08. The 52-week high is $61.69. The First Trust ISE Global Copper Index Fund (NASDAQ: CU) is up about 2.25%, at $26.37, in a 52-week range of $23.60-$46.85.

Agricultural ETFs are up slightly this morning. The Teucrium Corn Fund (NYSE: CORN) is up about 0.5%, at $40.09, in a 52-week range of $31.37-$50.69. The PowerShares DB Agriculture Fund (NYSE: DBA) is up about 0.6%, at $29.90, in a 52-week range of $26.60-$35.58. The Market Vectors Agribusiness ETF (NYSE: MOO) is up about 0.9%, at $42.30, in a 52-week range of $39.86-$57.93.

Paul Ausick

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