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Economy in Brief

Commodity Prices Are Down, But Not Out
by Tom Moeller  May 20, 2011

Earlier strength in commodity prices recently has given way to modest decline. Gold prices fell yesterday to $1,493 per ounce versus the high two weeks ago of $1,540. Crude oil prices were near the recent low at $98.44 per barrel versus the late-April high of $113.93. In fact, most commodity prices have shown similar weakness. For its part, the economic news from the U.S. has been disappointing -- from home sales to real consumer spending and from industrial output to small business sentiment. There hardly is enough weakness in the data to get too concerned about economic growth. Growth should remain positive. But forecast numbers recently have been revised lower.

Industrial commodity prices have exhibited most of the recent weakness. The FIBER price index is down 10.0% from its April high led by declines of at least that amount in zinc, aluminum and copper scrap prices. However, it's hard to get too bearish given that these, and other industrial materials prices are still up sharply from their respective lows. Textile product prices recently showed a lesser 5.0% price decline led by lower cotton prices, but a modest rebound already has taken hold. The housing sector is where weakness continues to drive commodity prices down. Framing lumber costs have yet to find support after their recent 15.1% decline from the January high.

Prices for many agricultural products have shown volatility similar to industrials. Wheat & corn prices at least have stabilized after earlier declines. However, meat prices have yet to put a floor under a decline which began in April.

The recent weakening of commodity prices comes in tandem with the softness of industrial output. In April it fell 0.4% for the first monthly decline since the last recession's end. Most of that decline was due to lower motor vehicle output resulting from the earthquake in Japan, but less motor vehicles output softened as well. Going forward economic growth should continue, at least that's the conclusion reached by most forecasters based on low interest rates and the release of pent-up demand. A sign that growth is firming is a necessary ingredient to firmer commodity prices.

Commodity price data can be found in Haver's DAILY, WEEKLY and CMDTY databases.

Commodity Prices and Inflation is analysis from the Federal Reserve Bank of San Francisco in 1996. It can be found here.

Commodity Prices Latest Latest Y/Y 2010 2009 2008
Gold ($ per troy ounce.) 1,493 25.3% 1,224.3 972.3 872.0
Crude Oil ($ per barrel) 98.44 44.7 79.42 61.83 99.83
Commodity Research Bureau Spot Index - All Commodities (1967=100) 560 31.2 451 361 422
  Foodstuffs 501.6 40.0 379 310 373
  Livestock & Products 622.6 30.1 470 355 457
FIBER Industrial Materials Price Indexes (1990=100) 176.3 9.6 158 122 148
Textiles 90 12.9 81 73 74
  Cotton (cents per pound) 159 108.8 88.0 52.6 58.1
Metals 283 29.8 240 169 231
  Aluminum ($ per metric ton) 2,510 27.5 2,173 1,665 2,572
  Copper Scrap (cents per pound) 404 39.6 327 197 281
  Steel Scrap ($ per ton) 410 10.6 327 204 350
Miscellaneous 189 -12.1 179 128 159
  Natural Rubber (cents per pound) 269 35.1 183 84 124
  Framing Lumber ($ per 1000 board) 259 -24.7 293 221 253
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