Commodity Index Sees Biggest Fall in 9 Months
The red-hot market in commodities cooled a bit Monday, sending a key index of prices in the sector to its biggest loss in nine months.
But the commodity that matters most to many consumers -- crude oil -- slipped just fractionally from Friday’s record high.
Tumbling prices for cocoa, soybeans, gold, coffee and other hard assets drove the Reuters-CRB index of 17 commodity futures prices down 5.71 points, or 2%, to 313.49, the steepest one-day drop since June 2. The index last week hit a 24-year high.
Profit taking by speculators and a rally in the dollar clipped the bull market in commodities, analysts said.
The dollar’s slide over the last few years has stoked demand for many commodities because they generally are priced in dollars worldwide. As the buck weakens, commodities become cheaper for buyers in countries with stronger currencies.
A healthier dollar, by contrast, would make commodities more expensive, possibly hurting demand.
The dollar jumped Monday, in part reflecting some currency traders’ expectations that the Federal Reserve today might signal a more aggressive policy in raising short-term interest rates. Higher rates could increase demand for U.S. bonds, boosting the dollar as well.
“The problem I think that commodity markets are running into is interest rates,” said Ron Goodis, director of retail trading at Equidex Brokerage Group Inc. in Closter, N.J. “You are starting to hear a groundswell about the Fed becoming hawkish,” meaning more concerned about inflation.
The biggest loser in commodity markets Monday was cocoa. Near-term futures plunged $111, or 6%, to $1,733 a ton in New York trading. Prices had reached two-year highs last week on supply concerns. But the Ivory Coast, the No. 1 cocoa grower, has seen above-average rainfall over the last few weeks, fueling hopes for a more abundant crop this year.
Soybean futures also declined Monday. The near-term contract in Chicago fell 22.5 cents, or 3.5%, to $6.26 a bushel as some traders reacted to prospects for record crops in Brazil and Argentina, the world’s largest growers after the United States.
In metals trading, near-term gold futures in New York dropped $8.20 to $431.10 an ounce. Platinum lost $9.80 to $870.20 an ounce.
Oil failed to follow other commodities sharply lower. Near-term crude futures, which hit a record closing high of $56.72 a barrel Friday, slipped just 10 cents to $56.62 in New York.
The price barely budged even though Saudi Arabia’s oil minister, Ali Ibrahim Naimi, said the president of the Organization of the Petroleum Exporting Countries was in talks with members about the date of a second increase in output quotas, as discussed at the cartel’s meeting last week.
OPEC agreed Wednesday to raise the group’s quota by 500,000 barrels a day and to consider a second increase of the same size.
“OPEC is starting to talk about increasing output ... but the market will probably ignore the move,” said Tom Bentz, an oil broker at BNP Paribas Commodity Futures in New York. “Demand is set to rise later this year, and OPEC might not be able to keep up with it.”
