A commodity price index is a fixed-weight index or (weighted) average of selected
commodity
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
prices, which may be based on spot or futures prices. It is designed to be representative of the broad commodity asset class or a specific subset of commodities, such as energy or metals. It is an index that tracks a basket of commodities to measure their performance. These indexes are often traded on exchanges, allowing investors to gain easier access to commodities without having to enter the futures market. The value of these indexes fluctuates based on their underlying commodities, and this value can be traded on an exchange in much the same way as stock index futures.
Investors can choose to obtain a passive exposure to these commodity price indices through a
total return swap
Total return swap, or TRS (especially in Europe), or total rate of return swap, or TRORS, or Cash Settled Equity Swap is a financial contract that transfers both the credit risk and market risk of an underlying asset.
Contract definition
A sw ...
or a
commodity index fund
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a com ...
. The advantages of a passive commodity index exposure include negative correlation with other asset classes such as equities and bonds, as well as protection against
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
. The disadvantages include a negative
roll yield The roll yield is the difference between the profit or loss of a futures contract and the change in the spot price of the underlying asset of that futures contract. Unlike fixed income or dividend yields, a roll yield does not provide a cash payme ...
due to
contango
Contango is a situation where the futures price (or forward price) of a commodity is higher than the ''expected'' spot price of the contract at maturity. In a contango situation, arbitrageurs or speculators are "willing to pay more owfor a comm ...
in certain commodities, although this can be reduced by active management techniques, such as reducing the weights of certain constituents (e.g. precious and base metals) in the index.
The first index to track commodity futures prices was the Dow Jones futures index which started being listed in 1933 (backfilled to 1924).
The next such index was the
CRB ("Commodity Research Bureau") Index, which began in 1958. Due to its construction both of these were not useful as an investment index. A later practically investable commodity futures index was the
Goldman Sachs Commodity Index
The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of ...
, created in 1991 and known as the "GSCI".
["The Food Bubble", Frederick Kaufman, Harper's, 2010 July] The next was the Dow Jones AIG Commodity Index. It differed from the GSCI primarily in the weights allocated to each commodity. The DJ AIG had mechanisms to periodically limit the weight of any one commodity and to remove commodities whose weights became too small. After AIG's financial problems in 2008 the Index rights were sold to UBS and then to Bloomberg and it is now known as the Bloomberg Commodity Index. Other commodity indices include the Reuters / CRB index (which is the old CRB Index re-structured in 2005) and the Rogers Index.
In 2005 Gary Gorton (then of Wharton) and Geert Rounwehorst (of Yale) published "Facts and Fantasies About Commodities Futures", which pointed out relationships between a commodities index and the stock market, and inflation.
They were both employed as consultants to AIG Financial Products (AIG-FP), which was responsible for managing the DJAIG Index. Gorton's other role was to provide AIG-FP with the mathematical modelling expertise underpinning the construction of "Super-Senior" credit derivatives linked to mortgage-backed securities so as to ensure AIG was not exposed to risk of loss.
Categories
The constituents in a commodity price index can be broadly grouped into the following categories:
*Energy (such as Coal, Crude Oil, Ethanol, Gas Oil, Gasoline, Heating Oil, Natural Gas, Propane)
*Metals
**
Base metal
A base metal is a common and inexpensive metal, as opposed to a precious metal such as gold or silver. In numismatics, coins often derived their value from the precious metal content; however, base metals have also been used in coins in the past ...
s (such as Lead, Zinc, Nickel, Copper)
**
Precious metal
Precious metals are rare, naturally occurring metallic chemical elements of high economic value.
Chemically, the precious metals tend to be less reactive than most elements (see noble metal). They are usually ductile and have a high lustre. ...
s (such as Gold, Silver, Platinum, Palladium)
*Agriculture
**Grains (such as Corn, Oats, Rice, Soybeans, Wheat)
**Softs (such as Coffee, Cocoa, Sugar, Butter, Cotton, Milk, Orange Juice)
**Livestock (such as Hogs, Live Cattle, Pork Bellies, Feeder Cattle)
Indexes
*
AIG Emerging Market Foreign Exchange IndicesAstmax Commodity Index (AMCI)*
Bloomberg Commodity Index The Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Index Services Limited. The index was originally launched in 1998 as the Dow Jones-AIG Commodity Index (DJ-AIGCI) and renamed to Dow Jones ...
*
Credit Suisse Commodity Benchmark Index (CSCB)
*
Deutsche Bank Liquid Commodity Index
The Deutsche Bank Liquid Commodity Index (DBLCI) was launched in February 2003.
It tracks the performance of six commodities in the energy, precious metals, industrial metals and grain sectors. The DBLCI has constant weightings for each of the six ...
(DBLCI)
*
S&P GSCI
The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of ...
(formerly Goldman Sachs Commodity Index)
*
NCDEX Commodity Index The NCDEX Commodity Index is an equal-weighted spot price index of 10 agricultural commodities covering different goods such as oils and oilseeds, fibres, etc.
It is the first such index to be launched in India. Based on the components of the spot ...
*
Refinitiv Equal Weight Commodity Index The Refinitiv Equal Weight Commodity Index (formerly known as the Continuous Commodity Index) is a major US barometer of commodity prices. The index comprises 17 commodity futures that are continuously rebalanced:
cocoa, coffee, copper, corn, cott ...
(formerly Continuous Commodity Index)
*
Refinitiv/CoreCommodity CRB Index
The Refinitiv/CoreCommodity CRB Index (RF/CC CRB) is a commodity futures price index. It was first calculated by Commodity Research Bureau, Inc. in 1957 and made its inaugural appearance in the 1958 CRB Commodity Year Book.
The Index was origin ...
*
Rogers International Commodity Index
The Rogers International Commodity Index (RICI) is a broad index of commodity futures designed by Jim Rogers in 1996/1997. The first fund tracking the index began on July 31, 1998.
Overview
The index was designed to meet the need for consistent ...
SummerHaven Dynamic Commodity Index*
UBS Bloomberg Constant Maturity Commodity Index
UBS Group AG is a multinational Investment banking, investment bank and financial services company founded and based in Switzerland. Co-headquartered in the cities of Zürich and Basel, it maintains a presence in all major financial centres ...
(CMCI)
World Bank Commodity Price Index
Discontinued Indexes
*
Commin Commodity Index
COMMIN, from COMmon MINdscapes, is an EU-financed project concerned with spatial development in the Baltic Sea Region. Its goal is to interconnect the countries on the Baltic Sea — Germany, Poland, Denmark, Sweden, Finland, Lithuania, Latvia, Es ...
*
Dow Jones Futures Index of 1933
Dow or DOW may refer to:
Business
* Dow Jones Industrial Average, or simply the Dow, a stock market index
* Dow Inc., an American commodity chemical company
** Dow Chemical Company, a subsidiary, an American multinational chemical corporation
...
*
Standard & Poor's Commodity Index The Standard & Poor's Commodity Index (SPCI) is a commodity price index that measures the price changes in a cross section of agricultural and industrial commodities with actively traded U.S. futures contracts, stretching across five sectors - Energ ...
See also
*
Commodity index fund
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a com ...
References
{{reflist
External links
Commodity Indexes Overview and Analysis by Rogers Raw MaterialsResearch Database of Commodity Price IndicesCommodity price indexat the Open Directory Project
Derivatives (finance)