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- 2009 - The Commodity Price Trend

The Continuous Commodity Index (CCI) in 2008 peaked at a record high of 615.04 in July 2008, bringing the 2001-08 bull market to a post-war record of +236.4%. The CCI index was driven to that high by weakness in the dollar and speculative fever. However, the CCI index then plunged through the remainder of the year, falling by 48% from the record high posted in July 2008 to the 3-year low posted in December 2008. The CCI index ended 2008 down –23.7%, breaking the string of six consecutive annual increases (2002 +23.0%, 2003 +8.9%, 2004 +11.2%, 2005 +22.5%, 2006 +13.5%, 2007 +20.6%). The CCI index plunged in the latter half of 2008 as the global economy slowed and the global financial crisis emerged in September 2008. The global financial crisis caused a wash-out of speculative positions and the global recession meant a long period of weak demand for commodities.

All of the six CCI futures sub-sectors closed lower in 2008: Meats –2.7%, Softs –7.5%, Metals –19.0%, Grains –20.2%, Energy –46.1%. Reuters discontinued publishing the CCI sub-sector indexes in 2008. The sub-sector changes noted above are calculated by simply taking the average of the percentage changes of the constituents in each sub-sector.

Energy
The CCI Energy sub-sector, which is composed of Crude Oil, Heating Oil, and Natural Gas, accounts for 18% of the overall CCI Index. The constituents in the Energy sub-sector on average in 2008 closed down –46.1%, more than reversing the previous year’s index gain of +39.5%. On a nearest-futures basis, crude oil in 2008 closed down –53.5%, gasoline closed down –59.3%, heating oil closed down –46.8%, and natural gas closed down –24.9%. Crude oil prices rallied sharply in the first half of 2008 due to the weak dollar and speculative fever. However, oil prices then plunged in the second half of 2008 as the U.S. economy due to the housing crisis and as the global financial crisis emerged in mid-September with the Lehman Brothers bankruptcy, which caused heavy long liquidation pressure and a sharp decline in global fuel demand.

Grains
The CCI Grains and Oilseeds sub-sector, which is composed of Corn, Soybeans, and Wheat, accounts for 18% of the overall CCI Index. The constituents in the Grains and Oilseeds sub-sector on average closed down –20.2% in 2008, reversing part of the +53.0% yr/yr index gain seen in 2007. On a nearest-futures basis, corn in 2008 fell –10.6%, soybeans fell –18.9%, and wheat closed –31.0%. Corn and soybean prices in the first half of 2008 extended the 2007 rally, which was sparked by the sharp increase in demand from ethanol producers for corn (which reduced soybean planting) and by the speculative bubble in commodity prices. However, corn, soybean and wheat plunged later in 2008 due to the global financial crisis.

Industrials
The CCI Industrials sub-sector, which is composed of Copper and Cotton, accounts for 12% of the overall Index. The constituents in the Industrials sub-sector on average showed a -40.9% decline in 2008, more than reversing the +13.4% gain in 2007. Copper closed sharply lower by –54.0% due to (1) heavy long liquidation pressure after the speculative run-up in commodity prices, and (2) the sharp drop in demand due to the global financial crisis and global recession. Cotton prices fell –27.9% in 2008, more than reversing the +21.0% gain in 2007. Cotton was undercut by falling demand for cotton.

Livestock
The CCI Livestock sub-sector, which is composed of Live Cattle and Lean Hogs, accounts for 12% of the CCI Index. The constituents in the Livestock sub-sector on average closed –2.7% lower in 2008 following the small increase of +0.1% seen in 2007. On a nearest-futures basis, cattle closed –10.5% while hogs closed +5.2%. Livestock prices were pressured in 2008 by weaker demand and by high feed and financing costs, which temporarily raised slaughter rates. On the bullish side, smaller herds were a supportive factor.

Precious Metals
The CCI Precious Metals sub-sector, which is composed of Gold, Platinum, and Silver, accounts for 17% of the overall Index. The constituents in the Precious Metals sub-sector on average closed –19.0% lower in 2008, reversing most of the +26.4% rally in 2007. Bearish factors for precious metals included the stronger dollar in the second half of 2008 and long liquidation pressure after the 2001-08 commodity bull market ended. Bullish factors included flight-to-safety during the global financial crisis and concerns that global central banks were debasing their currencies with extraordinary monetary rescue measures.

Softs
The CCI Softs sub-sector, which is composed of Cocoa, Coffee, Orange Juice, and Sugar #11, accounts for 23% of the CCI Index. The constituents in the Softs sub-sector on average in 2008 closed –7.5% lower. The big loser was orange juice with a -52.3% decline on weak demand and the lack of any hurricane damage during the season. Coffee prices closed –17.7%. Cocoa showed a sharp +31.0% gain while sugar rose +9.1% in 2008.

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