Commodity bulls make another run at new highs

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Anyone who eats or drives has to be rooting for the commodity bull market to go bust.

And when prices of many raw materials plunged beginning in mid-March, it looked like the jig might be up. Then Barron’s magazine chimed in with a cover story on March 31 warning about excessive speculation in commodities -- another sign that a peak might be near, or already past.

But the bulls were back in the driver’s seat today. Crude oil futures jumped $2.37 to $110.87 a barrel, a record close, and traded as high as $112.21.

Corn futures also set a new high, up nearly 13 cents to $6.05 a bushel. All in all, 14 of 19 raw materials in the Reuters/Jefferies CRB commodities index rose in the session.

The index itself, at 408.50, remains below its record high of 420.64 set on March 13. So it’s still possible we’ve seen the peak.

But some strong forces are working in favor of commodities. One is that buyers don’t seem to be scared off by the prospect of a U.S. economic recession and slower growth worldwide. The bulls doubt that supplies of some raw materials will be adequate to meet even less-robust demand.

Global inventories of copper, for example, ‘are extremely low,’ says Frank McGhee, a commodities trader at Integrated Brokerage Services in Chicago. The metal rose 11.9 cents to nearly $4.03 a pound today in futures trading, lifting its year-to-date gain to 32%.

Oil’s rally today stemmed in part from the government’s report of a larger-than-expected drop in U.S. inventories last week (although the shortfall may be an aberration related to shipping delays at the Port of Houston).

Commodities also are getting help from the anemic dollar. Because raw materials are priced in dollars in world markets, a weaker greenback makes commodities relatively cheaper for foreign buyers who have stronger currencies -- like, say, China.

What’s more, commodity exporters, like OPEC, have more incentive to keep prices rising when they’re getting devalued dollars for their stuff.

The dollar’s lack of appeal also gives global investors more reason to play around in commodities, says Marc Chandler, head of currency strategy at Brown Bros. Harriman in New York.

To bring down commodity prices, then, just get the dollar up -- which also would stop the screaming of European exporters whose products are being priced out of the U.S. market.

When the finance chiefs of the Group of 7 industrialized nations meet in Washington beginning Friday, they’ll have an opportunity to try to jawbone the dollar higher. But nobody’s expecting much, and that showed in the euro’s rally from $1.572 on Tuesday to $1.583 today, just under the record closing high of $1.585 on March 26.

‘That’s telling us the market is expecting no new action on the dollar’ from the G7 group, Chandler said.

Note to the G7: The best time to spring a surprise is when no one’s looking.