Comparing the CRB Index with the Continuous Commodity Index (Old CRB)
Comment of the Day

November 05 2013

Commentary by Eoin Treacy

Comparing the CRB Index with the Continuous Commodity Index (Old CRB)

Eoin Treacy's view There is often some confusion between which of these indices is more reflective of commodity prices generally so it is important to denote the differences in calculation. In simple terms, the CRB Index gives more weighting to energy while the Continuous Commodity Index represents the original unweighted index that dates from the 1970s. The difference in calculation results in quite marked differences in performance. Just such a case is now evident.

The CRB Index has been negatively affected by the decline in energy prices and broke downwards to new 16-month lows yesterday. A short-term oversold condition is evident but a clear upward dynamic would be required to pressure short positions.

The Continuous Commodity Index (CCI) is unweighted and has fallen for five of the last six weeks, returning to test the lows near 500. A short-term oversold condition is also evident here. At FT Money we have long expressed a preference for the CCI as an aggregate measure of commodity performance because of its lengthy back history and consistency of calculation.

From a medium-term perspective, the Index reached an impressive peak in 2011 and has been trending lower since. The 500 area represents a psychological level and will need to hold if prospects for demand dominance are to remain credible.

The Supply Inelasticity Meets Rising Demand theme David identified, as early as 2002, identified the need for massive investment in additional supply across the commodity complex. A great deal of this supply came online over the last few years. Concurrently, the expectations for global growth used to justify investment in new projects have disappointed which contributed to the Index drifting lower. It is therefore reasonable to expect that a catalyst in the form of higher economic growth is required to reinvigorate the demand component of the market.

Some of the more interesting charts at this stage include:

Arabica coffee has been trending lower since 2011 but the pace of the decline has picked up of late as prices approach the psychological $1 level. The first upward dynamic is likely to be the beginning of a bottoming out process. Robusta coffee is currently more overextended relative to the 200-day MA than at any time since at least 2011.

NYBOT Sugar rallied to break back above the 200-day MA for the first time in more than a year from early October. It found at least short-term support in the region of the trend mean this week but some support building is probably required before a move to higher levels can be sustained.

Corn continues to drift lower. A break in the progression of lower rally highs will be required to pressure shorts and to check supply dominance.

Cocoa has held a progression of higher reaction lows since July and has returned to test the 2012 peak near $2700. It found support today in the region of the upper side of the underlying range and a sustained move below $2600 would be required to question the consistency of the four-month uptrend.

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