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During the financial meltdown of 2008, we saw a sharp sell off of commodity prices. As the year 2009 began, countries around the world had stockpiles of raw commodities such as oil, iron ore and copper. Then, during the second half of 2009, developing countries saw their economies surge with new growth. This, in turn, sparked renewed demand for basic commodities.
Now, as we enter 2010, the continued demand from developing countries is expected to continue, putting pressure of commodity prices. Scarcity of any commodity or product is the determining factor in the price. Oil, for example, traded at $80.00 per barrel last week.
To give you a sense of where we are, last year the Reuters-Jefferies CRB Index rose 24%, the biggest move since the oil shock of 1973. The IMF index of commodity prices gained 40% since the trough of the global recession in February 2009. Following previous recessions, the index rose only 5%. Stock markets in developing countries have followed suit.
Looking into the 2010 crystal ball, if the BRIC countries (Brazil, Russia, India and China) keep their economies in high gear, look for rallies in commodity prices to continue. Also look for continued pressure on inflation as these prices rise. It's only a matter of time before raw commodity price increases are passed through to the consumer.
Would you buy commodity futures or stocks in basic commodity companies this year?
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