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- 2010 - The Commodity Price Trend

The Continuous Commodity Index (CCI) rallied sharply in 2009 and recovered a significant portion of the losses seen in 2008. The CCI index 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 then plunged by an overall 48% to bottom out at a 4-year low of 322.53 in December 2008. The CCI index then rallied sharply during 2009 to post a new 1-year high and close the year up 33.4% at 484.42. Commodity prices rallied in 2009 due to (1) revived commodity demand with the global economic recovery that emerged mid-year, (2) strong GDP growth which reached 10.7% in China by Q4-2009, and (3) the dollar weakness seen during most of 2009 caused by financial institutions lightening up on the emergency dollar liquidity that they acquired during the financial crisis.

Five of the six CCI sub-sectors closed higher in 2009: Industrials +96.4%, Softs +63.5%, Energy +57.8%, Metals +43.1%, Meats +4.0%. The Grains sub-sector was the only one closing lower at -0.9%. 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 2009 closed up +57.8%, more than reversing the previous year's decline of -46.1%. On a nearest-futures basis, crude oil in 2009 closed up +77.9%, gasoline closed up +103.6%, heating oil closed up +50.7%, and natural gas closed down -0.9%. Crude oil prices rallied sharply in the first half of 2009 due to improved demand and OPEC's sharp 16% production cut from mid-2008 through Q1-2009. Crude oil prices then traded basically sideways in the second half of 2009 as supply and demand both rose slowly and as inventories slowly declined. World oil demand rose by +3.6% from mid-2009 to the 20-month high posted in December 2009.

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 -0.9% in 2009, adding to the -20.2% decline seen in 2008. On a nearest-futures basis, corn in 2009 rose +1.8%, soybeans rose +6.9%, and wheat closed -11.3%. Corn traded in a sideways range during 2009 as usage grew and absorbed a record crop. Soybeans also saw a record crop, but firm demand kept carry-over inventories well below the 5-year average. Wheat prices were pressured in 2009 by a near-record global wheat crop and a substantial rise in the global carry-over.

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 +96.4% rise in 2009, more than reversing the -40.9% decline seen in 2008. Copper closed sharply higher by +138.5% due to the reemergence of demand, particularly from China where GDP improved to +10.7% by Q4-2009. Cotton prices rallied +54.2% in 2009, more than reversing the -27.9% decline in 2008, due to strong Chinese demand and a tight supply situation with global cotton stocks falling to a 6-year low.

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 up +4.0% in 2009 following the -2.7% decline seen in 2008. On a nearest-futures basis, cattle closed +0.1% while hogs closed +7.8%. 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. Cattle prices were undercut in 2009 by weak exports but were supported by smaller herd sizes. Hog prices were hurt during mid-2009 by the swine flu epidemic, but then rallied sharply late in the year on smaller herds and tight supplies.

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 up +43.1% in 2009, more than reversing the -19.0% decline seen in 2008. Bullish factors in 2009 centered on weakness in the dollar and fears of inflation with global central banks pursuing extraordinarily easy monetary policies to pull the global economy out of its worst post-war recession and to prevent any new crises from developing.

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 2009 closed up +63.5%. All four commodities rose in 2009 with gains of +128.2% in sugar, +80.9% in orange juice, +23.4% in cocoa, and +421.3% in commodity. Tighter supply in the softs complex was the main bullish factor in 2009.

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