Transcripts

The Outlook for Commodities Investing in 2009

SUSIE GHARIB: All right Jeff. You get a glass of water as we move along here. Trading in commodities was a stomach-churning experience for many investors this year. Prices for everything from crude oil to corn reached dizzying heights early in the year, only to come crashing down this fall. Many investment advisors still recommend commodities for a diversified portfolio. But as Diane Eastabrook reports, experts say investors need to be both brave and patient in the months ahead.

DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Investing in commodities this year felt a lot like this. A weak dollar coupled with strong demand from developing economies like China kept everything from gasoline to grain on an upward trajectory in the first half of the year. By early July, the Reuters-Jeffries CRB Index which tracks commodity prices was up more than 30 percent. But then prices reversed, sending the index down nearly 40 percent on the year at the close of trading today. A global economic meltdown, a credit crunch and rising unemployment are to blame. At his trading desk in Chicago, veteran oil analyst Philip Flynn predicts demand for crude oil will keep falling in the coming weeks. Crude's drop from a record high of more than $140 a barrel last summer to around $40 now stunned even him. And despite the current unrest in the Middle East, Flynn doesn't see a sustainable rebound in oil anytime soon.

PHILIP FLYNN, ENERGY ANALYST, ALARON TRADING: Unless the economy turns around over night or if we have some major disruption, we're probably going to see energy prices a lot closer to $30 than we will ever to $100 again.

EASTABROOK: Flynn is less certain about the price of natural gas, down roughly 30 percent from last January. He says another cold winter could drain natural gas supplies and boost prices. Weather is also a concern for Jim Bower, president of Bower Trading. He's keeping a watchful eye on grain prices at the Chicago Board of Trade. Right now futures prices for both corn and soybeans are roughly half of what they were last summer. But, Bower says prices are making a comeback.

JIM BOWER, PRESIDENT, BOWER TRADING, INC.: We are already seeing some problems starting to develop in northern Argentina and Brazil on this soybean and corn market and that is why over the past three or four weeks, we've actually seen a pretty good move in the grains.

EASTABROOK: Bower also thinks the new Obama administration could pull other commodities out of their doldrums. He says the president-elect's pledge to improve the nation's infrastructure and create new jobs could give a boost to industrial metal and energy prices. But, the wild card for both Bower and Flynn is gold. While prices have declined in recent months over fears of deflation, Flynn thinks they could rise again.

FLYNN: At the end of the day, if the whole world falls apart, gold will still have value, but we don't know what that is in dollar terms.

EASTABROOK: Analysts expect commodity prices to remain volatile for several months and they say it could take several years before some commodity prices reach the lofty levels they hit last summer. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.