Commodity price index
A commodity index is a ratio that reflects the price or value changes in the commodity market or individual segments of the commodity market.
- 4.1 Commodity Indices
- 4.2 Raw material stock indices
Concept
A commodity index is a stock market index in a commodity market. It is a measure of the development of selected commodity prices in this market. It aims at the development in this part of the global financial market events documented representative. Starting point for the calculation of a commodity indices always forms a particular base period. The subsequent changes in the index over time reflect then on against the backward-looking performance (performance) of the resources contained in the hypothetical portfolio. The indices differ in the weights of raw materials, the rollover strategies and the rules for the change in the index composition. Commodity indices may form the basis for derivatives.
The ingredients in a commodity index can be roughly divided into the following categories:
- Energy Resources Fossil Fuels
- Fuels
- Industrial metals
- Precious Metals
- Agricultural commodities
- Livestock
Versions
Spot Return Index
The spot return index always shows the current commodity price in its nearest delivery month. At maturity, the calculation is switched to the next futures contract, with the price difference between the two contracts is not considered. Contango and backwardation therefore apply to the calculation of the index not be considered.
Excess Return Index
The Excess Return Index rolls the raw material from the current delivery month continuously for the next delivery month. So contango and backwardation are included in the calculation of the Index, in contrast to Spot Return Index. Interest income in this index are ignored. The Excess Return Index is similar to a price index.
Total Return Index
Also, the total return index rolls the raw material from the current delivery month continuously for the next delivery month. Contango and backwardation are also reflected in the calculation of the index. In contrast to the Excess Return Index Total Return Index includes additional interest income and therefore is more like a performance index. When buying a commodity futures need not be the full value of the contract will be deposited on the futures exchange, but only a small part of the so-called margin. This also applies to the operators of commodity indices, which invest the remaining funds in short -term U.S. government bonds. The resulting interest income included in the calculation of the Total Return Index.
Inflation indicator
A commodity index is considered as an indicator for the future development of inflation or the cost of development in the industry. He is at a turning point in the commodities market is a good leading indicator for the bond market, as raw materials in their tendency towards the bonds generally have a lead time of three to six months. Between the interest on the bonds and commodity prices, there is also a close temporal connection.
Correlations of commodity indices with the geometrically weighted U.S. dollar index and the trade-weighted Trade Weighted U.S. Dollar Index can be seen. A falling U.S. dollar is equivalent to inflationary tendencies and tend to rising commodity prices. This is especially true for agricultural commodities and the price of oil.
For Europeans, it is exactly the opposite. A strong U.S. dollar leads to a weak euro (see Euro Effective Exchange Rate Index ). Based on the linkages between the markets, this means a constant velocity of commodity prices and euro. Many currencies are relatively strongly dependent on the evolution of commodity prices. For example, the Canadian dollar has a close correlation to commodity indices. The currency tends to increase along with the index.
A context consists of freight rates with commodity prices and demand for metals, fuels, and foodstuffs. There is a certain parallelism between the development of commodity indices and the Baltic Dry Index ( BDI). The BDI is published by the Baltic Exchange in London and is an important price index for the worldwide shipping of main cargo (mainly coal, iron ore and grain ) on standard routes.
Indices
Commodity indices
The oldest commodity index is the Economist Commodity Price Index. He was first published in 1864 and calculated back to 1845. The original underlying were 100 points and the base period 1845 until 1850. Since the revision of 2005 25 raw materials ( 56.4 percent) and industrial materials ( 43.6 percent) are listed in the index that in the sectors of food distributed. Today's conventional oil resources, oil and precious metals products are not included.
The price trend of 19 relevant raw materials for world trade measures the Thomson Reuters / Jefferies CRB Index. He was first calculated in 1957 by Commodity Research Bureau ( CRB) in the USA. The index is considered as a superior indicator of the broader Natural Resources sector. The current commodity index, which bears the name of CRB index is not comparable with the historical CRB index. In 2005 he was fundamentally revised, as its traditional calculation method was no longer current. The original CRB Index running ever since under the name of Continuous Commodity Index ( " Old CRB Index") on.
Other commodity indexes are the Dow Jones -UBS Commodity Index (formerly Dow Jones -AIG Commodity Index ), the Rogers International Commodity Index ( RICI ) and the S & P GSCI (formerly the Goldman Sachs Commodity Index). A food price index of the Food and Agriculture Organization ( FAO) of the United Nations, the FAO Food Price Index ( FFPI ). It records the development of the world market prices of various agricultural commodities and food products.
The following table gives an overview of the most famous commodity indices.
¹ The original CRB index was introduced in 1957 and renamed the Continuous Commodity Index 2005.
Commodity equity indices
In contrast to commodity indices commodity equity indices do not reflect the performance of the commodities but of limited companies. Examples are the NYSE Arca Gold BUGS Index ( HUI ), a share index of international gold producer and gold mainly promoting mining companies, and the Philadelphia Gold and Silver Index ( XAU), are listed in the international gold and silver producers.
The XAU represents a portfolio of hedged and unhedged mining companies whose funding is secured both without and with forward sales. This is a substantial difference to the HUI, which includes only shares of gold producers who make the no forward sales.