We probably all know about the CRB index, and it’s use as an index of commodities, and how it can be watched as a gague of the general level of commodities… Most importantly, the CRB index has been falling quite a bit since last August:

CRB Index

With the falling CRB, quite a few people have hopped on the commodity-bear bandwagon, claiming that commodities are falling because (insert your favorite reason here). Everything from a slowing economy to “this time it’s different”.

Of course, one important thing to review when looking at an index like this is whether or not the index has changed. In the case of the CRB index, it changed dramatically in July 2005.

As per this article on the changes in the index…

…the composition and calculation methodology of the venerable CRB commodities index radically changed in July 2005. The equal weighting of components and geometric averaging of prices that had defined the CRB for its first 48 years of existence were thrown out the window. An entirely new never-before-seen beast was created.

Oil and two of its refined products now account for one-third of the weight of this new CRB revision, the tenth in its storied history. So the index widely known as the CRB today is the radically different tenth revision, or CRBr10. When the anomalously warm winter eroded oil demand across most of the northern hemisphere, oil had no choice but to correct aggressively. Of course the CRBr10, effectively 33% weighted in oil, fell in sympathy.

The entire article is fairly decent, and worth skimming if you have the time.

There are some very good arguments for weighting Oil highly in the CRB index (oil literally fuels the economy), and the change in the index may very well be a reasonable thing to do.

But the important question to answer is this, how are commodities performing in the absence of this index change? The original CRB index (specifically, the 9th revision) continues to trade and can be charted as the Continuous Commodity Index ($CCI). Here is the last year of the CCI:

CCI Index

In contrast to the CRB, this is looking relatively strong. While it isn’t on a smooth, blip-free uptrend like the S&P 500, it is certainly doesn’t paint the bearish picture that the nose-diving CRB index does.

So, all those arguments that commodities are falling seem to be explanations chasing a non-existant problem.? We can talk at length about why oil or copper are falling, but the entire commodity complex is not fading away into irrelevance just yet…