Transcripts

Will Commodities Remain Golden in 2007?

SUZANNE PRATT: There was one major financial market open for trading in New York City today, the bond market, although it closed early. The 10-year Treasury note ended the day up 3/32 to 99 and 16/32. That put the yield at 4.69 percent. There was also an abbreviated trading session for bond futures at the Chicago Board of Trade today. That exchange and the nation's other commodity exchanges saw investors pour more than $100 billion into them last year and this year could be another banner year for commodities. But as Diane Eastabrook reports, some industry watchers say the craze over commodities may be more muted.

DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Analysts think the investment momentum into commodities will continue this year, but some predict that momentum could be at a slower rate. Crude oil saw a rapid price run up to around $80 a barrel in the middle of last year, before settling back to the $60 range. While some analysts think crude oil prices could trend even higher again in the months ahead, Peregrine Financial group senior vice president John Welsh isn't so sure. He believes the risk premium from the threat of terrorism has decreased and some speculators have left that market.

JOHN WELSH, SR. VICE PRESIDENT, PEREGRINE FINANCIAL GROUP: It's probably going to remain maybe close to where it is, but there is a very good possibility that crude oil could actually decline this year toward maybe $15 or $20, back toward $40.

EASTABROOK: Still, analysts say the influence higher crude oil prices have had around the world will continue to influence other commodities. Grain is likely to be the biggest beneficiary. Demand for corn to produce ethanol has driven corn futures prices to their highest level in a decade. Tim Hannagan, Alaron Trading's senior grain analyst, thinks corn prices will continue to soar this year.

TIM HANNAGAN, SR. GRAIN ANALYST, ALARON TRADING: A year ago, we consumed about one billion bushels of corn to produce ethanol. This coming season, 2007, it is estimated 3.7 billion bushels and only getting larger. We keep building the plants. We're seeing them in the private sector as well as the commercial grain companies.

EASTABROOK: Analysts think continued demand for industrial metals could help buoy their prices for at least the first part of the year. Gold is another story. Analysts aren't sure the dollar will weaken further against other currencies, sending gold prices up past $700 an ounce again. But Peregrine Financial's Welsh isn't writing off that possibility and thinks, at the very least, gold prices will remain volatile.

WELSH: If gold starts trading back up over $750 or $800 an ounce and starts taking out the old highs, then we are going to have to say -- have another look at it and say what is causing this and why is this metal moving this much.

EASTABROOK: Welsh thinks consumers could also play a significant role in commodities prices this year. He says if wages continue to improve, demand for everything from food to fuel could keep commodity prices rising. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.