The picture from Space that shows why Commodities are non-correlated to the Stock Market:

Nasa Pic

Picture Courtesy: MODIS

Right about now, you’re sitting there thinking: How on earth does this weather picture of the Wyoming & South Dakota have anything to do with stocks not being correlated to commodities?

Well let’s start with the obvious… The white in the picture is snow… a lot of snow.. in early October. The Earth Observatory provides a description of just how bad it was.

“Between October 3–5, 2013, an unusually early blizzard smothered northeastern Wyoming and western South Dakota with wet, heavy snow—not to mention rain, hail, thunderstorms, and even tornadoes. In South Dakota’s Black Hills, the storm dropped more than three feet (90 centimeters) of snow in some areas, knocking out power for about 25,000 people and killing tens of thousands of cattle.”

Wait?!?! What was that last part? Killing tens of thousands of cattle… How does that happen? This is the place where Cattle are raised. Where they’re supposed to be… But because this massive storm hit so early, the cattle weren’t able to grow their winter coats in time and many of them froze to death. Many, as in 15% to 20% of South Dakota’s cattle population died in this storm.

Weather always has the possibility of affecting commodity prices, but we usually think of things like floods and droughts and poor weather affecting grain prices (poor or great growing conditions) – you don’t usually think of the weather affecting cows and cattle prices. But it can, just look at the rise in prices since that fateful blizzard at the beginning of October.

Live Cattle
Chart Courtesy: Finviz.com
(Disclaimer: Past performance is not necessarily indicative of future results)

Which leads us to, commodities markets non correlation with the stock market. Things like a freak blizzard causing an up trend in cattle prices simply aren’t part of the stock market world. Prices aren’t rising because of a good consumer confidence number, earnings report, or interest rate decision. Prices are rising because there are 30,000 less cattle in the world (economics 101 = supply down, price up).  In more sophisticated vernacular – the two markets have different price drivers, and the price driver for the cattle is about as far away from the price drivers for the stock market as you can get.

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