Why the CRB is Useless for Tracking Commodity Prices

In 2006 (correct me if I’m wrong), the weightings in the CRB changed dramatically. The pre- 2006 CRB is now the CCI (continuous commodity index). There is now a dramatic difference between the CRB and the CCI.

In the following chart we plot the CRB and the CCI at the top, along with various commodity sectors. The CRB is 27% below its 2008 high while the CCI is 7.5% above its 2008 high. That is quite the disparity. Which is more representative of commodity prices?

To answer the question we looked at the various commodity sectors. Precious Metals are obviously well above their 2008 high. Livestock and Agriculture have exceeded their 2008 highs while Industrial Metals are within a hair of their 2008 high.

The only sector not to reach or exceed its 2008 high is the energy sector. We show that along with the CRB in the chart below. One can notice the strong similarity between the CRB and energy commodities.

Obviously the weightings between the CCI and CRB are significantly different. Here is a quick look at the weightings. The CCI is first, CRB second.

Softs- 23.5, 16.0
Energy- 17.6, 39.0
Grains- 17.6, 13.0
Precious Metals- 17.6, 7.0
Meats- 11.8, 7.0
Industrials- 11.8, 18.0

Energy’s weighting was jacked much higher while the weighting of the food related sectors (meats, grains, softs) was decreased. The weighting of metals decreased but this was achieved through a significant reduction in weightings of silver and platinum and a rise in the weighting for aluminum.

Overall, the energy sector is the only sector that is not at or above its 2008 highs. Yet because of its massive weighting, commodities as per the CRB, appear to be well-off their highs. This is a problem because most people have no idea that the CCI even exists. Here is a suggestion that commodities have been in a half-lost decade. The author would surely have the opposite conclusion if he looked at the CCI or looked at the various commodity sectors.

I hate to be critical but those who only follow the CRB are doing themselves and their followers a tremendous disservice. They are missing the obvious. The CRB as its presently weighted, is a joke and obfuscates the real happenings in the commodities markets. In the summer, colleague Dave Skarica and I discussed this and the breakout in the CCI, which happened at least a month prior to the CRB. Now we see the reverse. If one looks at the CRB they see a market that just broke higher and is well off its highs. Yet, the CCI suggests a market that is almost in blow-off mode.

In our premium service, we’ve focused entirely on the CCI and as a result, our aggressive portfolio has gained 27% (38% excluding cash) in just a few short months. Consider a free 14-day trial to our service and find out our current views on commodities!

Good Luck!

Jordan Roy-Byrne, CMT
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