Market indices cut across all kinds of assets and commodities. While many people are familiar with the FTSE100, DAX, Dow Jones Industrial Average, and S&P 500, many have never heard about the CRB Index, and that likely includes you.
The CRB or Commodity Research Bureau (CRB) Index is an indicator representing global commodity markets. It measures the aggregated price movement of various commodity sectors – precisely 19.
The design of the CRB is to isolate and reveal the directional price movements in overall commodity trades.
The CRB Commodity Index’s best performance to date came in July 2008, when it reached an all-time high of 470.17. This article discusses the CRB Index and delves into how you can trade the index and what you need to look out for in the process.
How Does the Commodity Research Bureau Index (CRB) Work?
Soon after the Great Depression in the 1930s, trading activity picked up in bonds, commodity futures, and stocks. But, commodity traders and enthusiasts had few sources of comprehensive information.
Milton Jiler founded the Commodity Research Bureau, with the Futures Market as a first publication. However, his motivation was better to reflect the overall price activity in the commodity markets. To take care of this issue and improve trade transparency, the CRB Index was designed to provide a dynamic representation of broad trends in commodity prices.
The New York Futures Exchange (NYFE) in 1986 introduced the CRB Futures Price Index and quickly became the most observed contract on the exchange. Various modern brokers support commodity indices to track baskets of commodities to reflect price movements. Likewise, investors use price movements to measure commodity prices and market access.
The Thomson Reuters Equal Weight Commodity Index is the CRB Index in its 1957 original equal weight.
Calculating the CRB Commodity Index
The Thompson Reuters/CoreCommodity CRB Index is calculated using the arithmetic mean (or average) of future commodity prices alongside monthly rebalancing. The index comprises 19 commodities, including Wheat, Sugar, Soybeans, Silver, RBOB Gasoline, Orange Juice, Nickel, Natural Gas, Live Cattle, Lean Hogs, Heating Oil, Gold, Crude Oil, Cotton, Corn, Copper, Coffee, Cocoa, and Aluminium.
There are four groups representing categories for these nineteen commodities and different weightings. The groups are:
CRB Index Trading Summary and Forecast
Going by a contract of difference(CFD) that tracks the benchmark market for this commodity, the CRB Index rose 59.78 points or 24.20% since the start of 2022.
According to the Trading Economics global analysts and macro models expectations, trading for the CRB Commodity Index is expected to be 318.57 points by the end of the quarter. The 12-month forecast is estimated to be at 333.13
The Refinitiv/CoreCommodity CRB Commodity Segment and Forward indices are rebalanced every month after the close of the sixth Business day to reinstate the fixed weights allocations from the 2005 revision.
The way to do the rebalancing is to rescale the percent return for individual commodities belonging to each Commodity Segment Main and Forward excess return index. The weights of the individual commodities are the same in both the Main index and the Forward index for each Commodity Segment.
The consequence of the monthly rebalance is that by the end of the seventh business day.
Trading the CRB Index
The CRB (Thomson Reuters/Jeffries CRB) Commodity Index is unfamiliar to many people, including seasoned traders. The name of the index changed to the Reuters CRB Index in 2001.
To trade CRB Index, you use the ICE Futures U.S. is the primary marketplace for futures and options contracts on the Reuters Jefferies/CRB Index. The Exchange started trading the CRB in its index marketplace in 1986.
Like all other indices, the index is affected by volatile geopolitical influences. Nevertheless, it remains a relatively reliable and stable standard measure of the global commodities market.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only