Commodities and Futures Guide.com

Commodity Price Trend

The Reuters/CRB Continuous Commodity Index (CCI) in 2007 extended the rally that began in 2001 and posted a new record high of 477.48 in December 2007. During the 2001-07 bull market, the Reuters/CRB CCI index rallied by a total of 161% from the low of 182.83 in October 2001 to the record high of 477.48 in December 2007. The Reuters/CRB CCI index closed 2007 up +20.6%, marking the sixth consecutive annual increase (2002 +23.0%, 2003 +8.9%, 2004 11.2%, 2005 +22.5%, 2006 +13.5%).

Five of the six Reuters/CRB Futures Price Sub-indexes posted gains in 2007: Grains +53.0%, Energy +39.5%, Metals +26.4%, Industrials +13.4%, and Meats +1.0%. Only one of the sub-indexes showed a decline: Softs at -1.8%.

The Reuters/CRB CCI index was driven higher in 2007 by basically the same factors as 2006, i.e., strong physical demand in most commodity markets, a continued influx of cash into commodity index funds, and the weak dollar. The dollar index fell by -8.4% in 2007, adding to the -8.2% decline seen in 2006. Commodity prices in 2007 received continued support from strong world GDP growth until the credit crunch starting biting into U.S. GDP growth late in the year.

Energy
The Reuters/CRB Futures Price Energy Sub-index, which is comprised of Crude Oil, Heating Oil, and Natural Gas, accounts for 18% of the overall Reuters/CRB CCI Index. The Energy Sub-index in 2007 closed +39.5%, more than reversing the previous year’s decline of -16.1%. The energy sub-index has now shown double digit percentage gains in five of the last six years (2007 +39.5%, 2006 -16.1%, 2005 +54.4%, 2004 +27.5%, 2003 +11.9%, 2002 +56.5%). Crude oil in 2007 on a nearest-futures basis closed sharply higher by +57.2% following the 2006 close of virtually unchanged. Gasoline prices rallied by 54.5% in 2007 and heating oil prices rallied by +65.5%. Natural gas rose +18.8% in 2007, regaining part of the -43.9% plunge seen in 2006. Petroleum prices showed strength all during 2007 due to a production cut by OPEC at the end of 2006 and the beginning of 2007, and then due to strong demand and a weak dollar through the remainder of the year.

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Grains
The Reuters/CRB Futures Price Grains and Oilseeds Sub-index, which is comprised of Corn, Soybeans, and Wheat, accounts for 18% of the overall Index. The Grains and Oilseeds Sub-index in 2007 closed +53.0% yr/yr, adding to the gain of +44.0% seen in 2006. Corn prices continued to rally in 2007 and closed +16.7% on the year due to strong demand from ethanol producers and strong demand for corn as human food and livestock feed. However, the star performers in 2007 were soybean prices (+75.4%) and wheat prices (+76.6%). Soybean prices rallied on reduced acreage and strong demand. Wheat prices rallied mainly due to strong demand combined with severe drought conditions in key wheat growing areas of the world, which produced the lowest U.S. ending stocks since 1947.