Commodities Market

From 2001 through mid-2008 the CRB commodities index sailed from a low of 170 to a
new all-time high of 475. The rapid rise reflects the effects of strong global demand coupled
with a long lag in productive capacity investment. After the deep global recession, the CRB
recovered substantially from a downturn low of 210 up to the 370 level on a sizable bounce
in final demand and re-inventorying led especially by China. Over the 2001 - 2011 interval,
a new investment cycle began to support rising commodities output. With a build up in
capacity and much lower global economic growth (2% per annum) over the past two years,
capacity excesses have developed and the CRB has been languishing. CRB Chart

The negative demand / supply imbalance has left the market teetering upon entering a long
term downtrend. The chart for the CRB is admittedly bearish as it stands with suggestion of
greater weakness ahead if the CRB breaks decisively below important support at the 270 level.

Interestingly perhaps is recent evidence that global industrial and commercial output may be
setting up to enter a period of faster growth with a move from 2% up 3%. Global PMI Comp.
This observation is not without some reservations. First, remember that purchasing manager
data is volatile and not so predictable short term. As well, it is far from clear that a shift from
low global growth to a more moderate level will be sufficient to lead to a period of recovery for
the commodities market.

Still it is an interesting time as demand may be picking up just as the CRB is about to test support.
Moreover, financial players have likely been flushed out of this market as they rotate into stocks,
which has been the big game in town for the past two years.