Transcripts

Grain Prices Show Growth Thanks To The Weak Dollar

SUSIE GHARIB: It has been a volatile few weeks for both equity and the commodity markets. Grain, energy and industrial metals prices have swung wildly, falling on recession fears and spiking higher on a weaker dollar. But as Diane Eastabrook reports, the gyrations could pave the way for big gains in commodities prices.

DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Last week, jitters in the equity markets rattled the commodity markets in Chicago. But today, grain prices rebounded thanks to a weaker dollar. Veteran trader Vic Lespinasse of Illinois Grain says the prospect for even higher prices looks promising.

VIC LESPINASSE, TRADER, ILLINOIS GRAIN: Demand is still good. Weekly export sales continue at a very rapid pace. That is good for commodity demand. That shows still we're seeing strong overseas demand.

EASTABROOK: Commodities include everything from crude oil to precious metals to livestock. They have been a safe haven for investors over the past year. In the last 12 months, the Dow Jones AIG commodity index was up, while the Standard & Poor's 500 Index was down. While prices for some commodities have been buffeted about in recent weeks over recession fears, experts think their outlook remains favorable. Recent cuts in interest rates are one reason. Experts say lower interest rates make dollar-denominated commodities less expensive for other countries to buy and lower interest rates make it cheaper for U.S. firms to build inventories of commodities. Futures brokerage Peregrine Financial Group noticed interest in commodities building over the past year. Chairman and CEO Russell Wasendorf thinks many investors are looking for diversity and portfolio protection in uncertain economic times.

RUSSELL WASENDORF, CHMN. & CEO, PEREGRINE FINANCIAL GROUP: This is more the profits, some of the profits that were made in the equity market. A small percentage of their total investment is being moved over into the fiscal (ph) markets.

EASTABROOK: Many investment advisers are encouraging clients to diversify with commodities, but with caution. Brett Rentmeester, a director for Altair Advisers, thinks the asset class should make up no more than 5 percent of an overall portfolio and he says commodities should be viewed as a long-term investment.

BRETT RENTMEESTER, DIRECTOR, ALTAIR ADVISERS LLC: I think you can get too hung up or investors can get too focused on the short-term. They should really be asking is this a place I want to be the next five years. If the answer is yes, I think you look through the near-term noise.

EASTABROOK: Traders say in the short run, commodity prices will remain volatile, but they think in the long run, tight supplies and high demand for many commodities will put a floor under prices. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.