CRB Commodity Index Caps Biggest One-Day Decline Since March

Tuesday, 05 August 2008 12:32

(Bloomberg) -- Plunging prices for cocoa, natural gas and sugar sent the Reuters/Jefferies CRB Index of 19 commodities to its biggest one-day decline since March.

The CRB index fell 3.4 percent to 401.98, which marks the largest slide since March 19. The gauge dropped to the lowest level since May 2 today, as did the UBS-Bloomberg Constant Maturity Commodity Index.The CRB slid 10 percent in July, the most in any month since March 1980, when the U.S. economy was in a recession. A worsening global growth outlook and prospects for increased supply sent raw materials such as crude oil, soybeans and gasoline tumbling from records in the past month.``Speculation had been driving these markets and they were due for a correction as so many prices had gotten overdone,'' said Peter Sorrentino, who helps manage $16.7 billion at Huntington Asset Advisors in Cincinnati. ``There are moderating growth expectations that are going to hurt industrial commodities. Going forward, you have to be very selective.

Cocoa was today's biggest loser, dropping as much as 9.5 percent to a six-month low of $2,712 a metric ton on ICE Futures U.S., the former New York Board of Trade. Natural gas fell as much as 8.3 percent to $8.616 per million British thermal units on the New York Mercantile Exchange, and sugar was down as much as 6.5 percent to 13.21 cents a pound on ICE Futures.Economy SlowsThe U.S. economy shrank at the end of the 2007 and grew less than forecast in this year's second quarter, signaling that the country is in worse shape than investors had anticipated, the Commerce Department said last week. Manufacturing in China, the world's fastest-growing major economy, contracted in July for the first time since a survey began in 2005.Slowing global growth will mean ``there won't be a tide to lift prices,'' Sorrentino said. ``Before, you could look at commodities and buy across the board. Now, you have to be much more nimble.''The CRB posted its best first half in 35 years, gaining 29 percent in the first six months of 2008 as investors stocked up on raw materials as an alternative to stocks and bonds and as a hedge against the weakening dollar.

Commodities are at the beginning of a long-term bear market,'' after rallying the past seven years, Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York, said last week.Aronstein correctly said in June that prices for raw materials would start to decline. The CRB index has lost 13 percent since June 30.Oil, Copper, GoldCrude oil lost as much as 4.5 percent to $119.50 a barrel on the Nymex, the first drop below $120 since May, amid speculation that Tropical Storm Eduoard won't cause disruption to most offshore oil facilities as it approaches the coast of Texas.

"Crude is leading everything down,'' said Hector Galvan, a senior market strategist for RJO Futures in Chicago. People have that fear of not wanting to be the last one on the boat -- it's `abandon ship' for the short-term.

Copper tumbled as much as 4.3 percent to $3.426 a pound on the Comex division of the Nymex, the lowest price since Feb. 8. Inventories monitored by the London Metal Exchange reached the highest level since February. Aluminum, nickel and other industrial metals also fell. Platinum capped the biggest two-day decline in 22 years.Falling prices may hurt profit for producers including BHP Billiton Ltd., the world's biggest diversified mining company, and Anglo Platinum Ltd., the world's largest producer of the metal. The Bloomberg World Mining Index of 139 companies tumbled 13 percent in July. The gauge lost as much as 4 percent today.Grain SlumpCorn and soybeans both fell more than 5 percent, dropping as much as the daily limit allowed on the Chicago Board of Trade, as favorable weather may boost the crops.The grains may continue to fall as demand from China, India and other emerging economies slows, said Daryll Ray, the director of the Agricultural Policy Analysis Center at the University of Tennessee in Knoxville.

There has been much more optimism about China and India and the export market than facts support,'' Ray said. Prices may fall through 2009, he said.Gold, wheat, coffee and orange juice also declined. Hogs were the only commodity monitored by the CRB to gain today.