Deflating Commodities

Wednesday, August 6th, 2008

The Reuters/Jefferies CRB Index is “the most widely recognized measure of global commodities markets” (if they do say so themselves on their Jefferies website) and last 2 July its measurement of the price of a bundle of 19 different raw-material commodities reached its all-time high. Since then, though, it has fallen by 10%, reports Christian Losson writing for the French newspaper Libération. (Raw Materials Deflate… A Little. Losson calls it the “Jefferie Reuters CRB,” FWIW.) Specifically: natural gas down 31%, corn down 19%, nickel down 18%, soya down 13%, gasoline down 11%. Even palm oil is affected (don’t laugh, it’s apparently important in the production of bio-lubricants), Malaysia is now finding it hard even to give the stuff away.

What’s happening here? Is it an up-and-down see-saw? The working-out of some cycle? A commodities crash? That CRB index hasn’t lost this much ground since 1980, when super-high interest rates drove America and then much of the rest of the world into recession. Losson tries his best to get some expert guidance, but the experts aren’t saying much. Maybe you can turn the causality around: if commodity prices are acting this way, that must mean that in effect America (and maybe much of the rest of the world) is in a recession now.

Then again, maybe not, because even more striking is the sheer volatility of commodities prices. The last week, he reports, both mineral and agricultural products (but he does not include oil/gasoline) have headed back up again in price. Beyond that, as one French professor he quotes reminds us, the potential for these prices to go higher – all it takes is some geopolitical or climate shock somewhere – is much larger than it is for them to continue to sink.

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