As the saying goes “the ballgame is over.” Or in the coffee shop, some are asking if it really is over.

I have been arguing for months that the corn and soybean market would get extremely overextended to the upside and the more overextended it became, the more risk there would be on the downside.

But human nature never changes — the majority of traders and producers still didn't believe it could happen. It has!

The accompanying chart shows a story that I've also been beating on for months. That story is the over-influence of index funds (the funds that can only go long) on commodity prices. Graphed are the value of the S&P Goldman Sachs fund (the largest index fund traded) along with corn prices and crude oil prices. The correlation of the three is more than a little frightening.

At the peak of the market, index funds owned over 20 percent of the U.S. corn crop and over 30 percent of the soybean crop. Their long position in corn was in excess of 2 billion bushels! Over 60 percent of that was held by one individual commodity fund.

All the way up, fundamentalists argued that it was only the fundamentals of worldwide demand and ethanol that was running the corn market up. I did not argue that the long-term fundamentals were bullish, but my point was very simple — the increase in demand moved corn from $2.50 to $5 per bushel. The last $3 on the upside, in my opinion, was due to the influence of over-speculation and primarily index fund buying.

Now as this is written, we are paying the price. The pendulum always swings to an extreme in the opposite direction of the first swing. This market went much higher than it should have ever gone, and now it is going much lower than many people can imagine.

That's all history. The key question for producers now — will the market recover and is this only a correction in a longer-term bull market?

I personally believe that the prices of corn and soybeans in June were the highest prices that we are going to see for several years to come. It is going to take a major production problem in order for commodity prices to rechallenge those highs.

On the bull side, however, demand is still strong, which means there will be a significant recovery at some point in time.

How high? Within the next three or four months, corn prices likely can rally back to the $5.75 to $6 area basis nearby Chicago futures.

It is doubtful that the market will be able to muster enough strength to get beyond that.

Soybeans can also come back, possibly pushing above the $13 mark.

The momentum of this market has changed. It was a classic bull market blowoff top with a bear market collapse. With the momentum shifting now in favor of the bears, for the next several months rallies are to be sold.