Just last week, our own Brad Zigler was talking about the ethanol bust; in particular, how the boom in corn prices (and inflation) had made being an ethanol refiner a pretty dismal proposition, and highlighting how the push-me-pull-you of inflation was hitting corn prices.

Good points, but I'm a simple guy. I like to stick to the things I can point to with some real assurance. That's part of what's so great about commodities investing - you're making bets on stuff, not just opinions and potential.

So when I see the kind of action we've seen in corn this summer, I am inclined to think there's something going on that's a bit more than just investor sentiment. Here's how it's gone lately:

So let's recap: This summer we had a huge run-up to $7.50/bushel in corn based almost entirely on a theoretical supply shock. Iowa briefly became a destination for boaters as millions of acres went under water from floods. The headlines at the time (in June) were predictably hyperbolic, prices spiked as traders bet against the character and ingenuity of Iowa farmers, and then, as Don Bousquet covered in July, the USDA dropped a surprise on the markets: Those crafty farmers had actually sewn a million or so more acres than previously thought. Supply shock over, the market then turned to the demand side, and saw the effect of the Corn Crush Squeeze that Brad highlighted last week.

And so, late summer has been a strictly "look out below" affair. Until last week, when corn started gobbling back pennies 25 at a time. So, why the pop?

First off, corn is at a critical point. The meme du jour is that ethanol's a bust, so that's bad for corn bulls. And weather is showing even more mixed signals now. July's good news for buyers - that the crops were just fine - was supported by the mid-August crop report from the USDA, which suggested farmers would be harvesting 79.3 million acres, pretty much in line with most analysts' expectations.

You'd expect that all this would continue corn's decline, so why the pop? One interesting theory is that speculators, having either been burned by staying in corn for too long, or being fat and happy on their realized gains, are out of the mix. That would imply a bit more stability in prices than we've seen this summer and a return to somewhat more rational-looking trading sessions that we saw in 2007. That's likely a win-win both for commodity producers and consumers long term.

But if you believe this theory, then supply and demand become even more fundamental drivers for immediate prices. One of the bigger surprises (at least to me) about the price spike was how elastic demand seemed to be. It turns out that cattlemen were more than willing to either slaughter earlier or just feed their cows something other than corn, like peas and barley: After all, cows are designed to live on grass in the first place, and corn was only introduced into the bovine diet as a matter of cost and convenience. With corn prices coming down, it's essentially the matter of a phone call for a feedlot to switch back from a substitute feed to corn.

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