Exactly, commodities go up and down based on fear and greed. However, they mostly go down based on overproduction. Commodity producers always increase production when the price goes up to meet demand. Then when demand backs off, the price of the commodity plummets and usually overcorrects to the down side.
Sometimes even in times of increasing domestic demand, like I am currently seeing in lumber, the price can go down because of factors in the world market or exchange rates.
Increases in production typically lower the per unit cost.
For example, if you have a fixed cost to have a sawmill run everyday the more lumber through the mill on a daily basis lowers your cost per board feet. Same thing for an oil refinery, steel mill, etc. So, when producers are making money they tend to reinvest to increase production and lower their fixed cost per barrel, board foot, cubic foot, etc. Eventually, they out produce demand. Then the price goes down.
The Lumber Broker
3 weeks ago the prognosis was doom and gloom for wheat production and prices went up. This week prognosis is all rosy and prices dropped like a rock. You cannot make me believe that this fluctuation has anything to do with reality. Commodity prices are manipulated for profit takers. Producers are screwed if we sell but it is hard not to panic. The commodity stock exchange moved to Chicago. That indicates a lot to me based on what comes out of Chicago! LOL
When the price drops, they have to produce even more to make enough to pay the banks. Leveraged expansion is always a bit of a crapshoot.