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What You Need To Know About The Commodity Research Bureau Index (CRB)

The Commodity Research Bureau Index is a commodity index calculated by Thomson Reuters/Jefferies (TR/J CRB). Investopedia.com describes the CRB Index as “an index that measures the overall direction of commodity sectors. The CRB was designed to isolate and reveal the directional movement of prices in overall commodity trades”.

The index takes into account the prices of 19 commodities; Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, oil »”>Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat.

It is weighted on a 4-tiered grouping system designed to reflect the significance of each commodity: Energy 39%, Agriculture 41%, Precious Metals 7%, and Base/Industrial Metals 13%. The weights by specific commodities are as follows:

Weights Of Specific Commodities In The Commodity Research Bureau Index

Source: Thomson Reuters

The CRB index was first calculated in 1957 and has a long history as the most widely followed of commodities futures. The CRB Futures Price Index has been adjusted on a regular basis in order to maintain its relevance. The Index has had 10 adjustments with the last being in 2005. Over time commodities such as eggs, oats, lard, rubber, potatoes and rubber have been replaced with more liquid and economically significant commodities. The last (10th) revision set up monthly rebalancing and rollover schedules.

The CRB Index can be used as a leading indicator of inflation. Inflation causes commodities to increase in price. The index reflects prices of futures contracts for 19 commodities. Therefore, an increase in the futures prices of a group of commodities indicates a potential increase in the general price level of an economy. The CRB index is good indication of market sentiment because it is monitored and updated by market participants throughout the day. Furthermore, a broad index of commodity prices acts as a leading indicator of inflation because the constituent commodities can be held as a store of value when an increase in the general price level is anticipated. The prices of these commodities can also adjust quickly to a change in inflation expectations because commodity futures contracts are highly liquid as they trade in efficient auction markets. If an investor is aware that inflation is likely to increase in the future, he/ she can reduce exposure to bonds because an increase in inflation devalues the price of bonds. At the same time an investor could invest in commodity based instruments as they are an inflation hedge.


Reuters Jefferies CRB Index

The CRB Index can be used as an investment tool. Investors need not invest in commodities directly. They can instead invest in a commodity index such as the CRB index which would provide them exposure to a basket of commodities. The CRB Index is calculated to give a fair representation of a diversified long only investment in commodities. The index trades on the New York Board of Trade at a contract size of USD 500.

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