The key takeaway here is that over the long term, all commodity prices fluctuate around the average cost of production.

When a commodity such as hogs trades at significantly more than the cost of production, you can count on producers to flood the market to take advantage of those high prices. When the new product hits the market, it typically collapses the price, perhaps considerably below the cost of production. The market regularly goes from being “too high” to “too low.” Commodities tend to be cyclical for that reason.


I do find, however, that charts are very valuable for two reasons: One, to give perspective, to show how high or low something is relative to the past. And two, to illustrate what the current trend is. An old rule in commodities is “the trend is your friend; don’t fight the trend.” Those are the two reasons why charts are important—to me, at least. They are useful for those things, but not predicting.

Doug Casey