Index Reflects Drought’s Pressure on Commodities

CHICAGO â€”  Commodity futures indexes widely used by traders as barometers of inflation reached multiyear highs this week as one of the most severe U.S. droughts this century drove up futures prices.

The Commodity Research Bureau (CRB) index, based on dollar futures prices of 21 commodities, the most widely followed, rose as precious metal and copper prices reacted to fears of inflation prompted by continued grain and soybean strength.

It reached a 3 1/2-year closing high Thursday of 260.78, compared to a record high of 333.6 in 1980.

Financial analyst Jim Nevler of the Commodity Research Bureau, a subsidiary of Knight-Ridder Inc., said the 21-commodity futures index gives an indication of the direction of commodity prices in months ahead.

“When the index is going up very sharply, people are looking for the bond market to get lower and to get out of the stock market,� Nevler said.

At such times the dollar usually has been weak, except when foreigners needed dollars to buy oil.

Nevler said an agricultural bias helps the index as a gauge of inflationary pressure, since food prices are likely to reflect higher futures prices sooner than big-ticket items.

“I consume wheat almost every day,� Nevler said. “I haven’t bought a car since 1985. That was the last time I consumed platinum personally.�

The CRB index comprises live cattle, cocoa, coffee, crude oil, copper, corn, cotton, gold, heating oil, live hogs, oats, lumber, orange juice, platinum, pork bellies, silver, soybean meal, soybean oil, soybeans, world sugar and wheat.

Economists and bankers involved in securities sensitive to interest rates use the index as a leading indicator, said statistician Seymour Gaylinn, who has calculated the index since it was started in 1956.

The New York Futures Exchange since 1986 has traded the CRB index as a futures contract.

The CRB index, expressed as a percentage of futures prices in 1967, is calculated using the geometric average of closing prices of the index’s commodities, effectively multiplying the figures together and taking the 21st root of the product.