Commodity Price Trend

The Reuters-Commodity Research Bureau Futures Index in 2003 closed the year at 255.29, up +8.86% from the 2002 close of 234.52. The rally in the Reuters-CRB Futures Index in 2003 produced the second consecutive yearly gain, adding to the +23.04% rally seen in 2002. In the recession year of 2001, the Reuters-CRB Futures Index fell –16.34%.

Four of the six Reuters-CRB Futures Price Sub-indices posted gains in 2003: Industrials (+45.31%), Precious Metals (+25.94%), Grains (+19.93%), and Energy (+11.87%). Two of the six Sub-indices posted declines: Softs (-17.53%) and Livestock (-5.26%). The decline in two of the Sum-indices in 2003 contrasted with 2002 when all six Sub-indices posted gains.

The Reuters-CRB Futures Index showed weakness in early 2003 due to the war with Iraq because it produced uncertainty and a weak US economy. However, the Index recovered after the war and stabilized through July of 2003. In late-July, the Index entered a 5-month-long bull market that continued into December. That bull market was driven by (1) the sharp recovery in the US economy in the latter half of 2003 which boosted demand for industrial goods, and (2) the severe weakness in the dollar. Because the dollar index in 2003 plunged by 15%, the cost of real goods was driven higher when priced in terms of the lower US dollar.

Energy
The Reuters-CRB Futures Price Energy Sub-index, which is comprised of Crude Oil, Heating Oil, and Natural Gas, accounts for 18% of the overall Index. The Energy Sub-index in 2003 closed +11.87%, extending the gain of +56.52 seen in 2002. Crude oil, heating oil, and natural gas all showed strong gains during the year, boosted by the recovery in the global economy in the second half of the year and by supply concerns as OPEC kept its production tight and as Iraq production lagged.

Grains
The Reuters-CRB Futures Price Grains and Oilseeds Sub-index, which is comprised of Corn, Soybeans, and Wheat, accounts for 18% of the overall Index. The Grains and Oilseeds Sub-index in 2003 closed +19.93%, adding to the +18.35% gain seen in 2002. Corn prices closed the year moderately higher at .53 per bushel because of the hot and dry growing season in the US which resulted in lower than expected yields. Soybeans posted a 6-year high of .02 per bushel late in the year because of a tight supply situation and large Chinese purchases of soybeans from the US. China in 2003 had to import more than half of the soybeans that it consumed. Wheat posted a new 1-1/4 year high of .09 per bushel in November due to the hot and dry weather over the summer and tight supplies.

Industrials
The Reuters-CRB Futures Price Industrials Sub-index, which is comprised of Copper and Cotton, accounts for 12% of the overall Index. The Industrials Sub-index showed a sharp gain of +45.31% in 2003, adding to the +24.51% gain seen in 2002. Copper staged a very sharp rally during the year because of the recovery in the US economy and then closed the year at a 6-year high of 104.30 cents per pound. Cotton rallied sharply during the year due in part to strong export demand to China, which saw a 14% decline in its own domestic cotton crop.

Livestock
The Reuters-CRB Futures Price Livestock Sub-index, which is comprised of Live Cattle and Live Hogs, accounts for 12% of the overall Index. The Livestock Sub-index closed –5.26% in 2003, posting another weak year after showing a +1.44% increase in 2002 and a –2.43% decline in 2001. Live cattle rallied sharply in the July-November 2003 period but then plunged by about 20% in December after the first case of mad cow disease was found in the US. Live hogs closed the year slightly higher with the rally late in the year due to hopes for improved pork demand given the concerns about beef.

Precious Metals
The Reuters-CRB Futures Price Precious Metals Sub-index, which is comprised of Gold, Platinum, and Silver, accounts for 17% of the overall Index. The Precious Metals Sub-index rallied sharply by +25.94% in 2003, adding to the +17.13% gain seen in 2002. Gold, silver, and platinum all staged sharp rallies during the year and hit new highs in the last week of 2003 due to improved consumer demand and the weakness in the dollar.

Softs
The Reuters-CRB Futures Price Softs Sub-index, which is comprised of Cocoa, Coffee, Orange Juice, and Sugar #11, accounts for 23% of the overall Index. The Softs Sub-index in 2003 closed sharply lower by –17.63%, nearly reversing the +20.13% gain seen in 2002. Cocoa closed the year -25% lower as the political situation stabilized in the Ivory Coast, the world’s largest producer of cocoa. Coffee closed the year at the top of its 55-70 cent trading range on tight supplies caused by a poor harvest in Brazil. Orange juice closed sharply lower on the year due to falling demand by calorie-conscious consumers and a 25% increase in Florida’s crop production. Sugar plunged during the year due to the 11th consecutive year of worldwide production surpluses.