Bloomberg Commodity Index trends downward to start the year.
The March contract for the Bloomberg Commodity Index (ERH23) was down for the third consecutive day on Thursday. Since ending 2022 at 112.80, the contract is down 5.03 at 107.77. The Bloomberg Commodity index that it tracks ($BCOM) is derived from the value of a basket of futures contracts for physical commodities, similar to how the E-Mini S&P 500 contract (ESH23) tracks an index of a basket of stocks ($SPX). It excludes contracts of “physically delivered” financial products like bonds or currency. Given its composition, the index can serve as a barometer for the broader marketplace for physical commodities.
Along with historically high inflation for consumers, 2022 saw significant inflation for commodities. The index reflected that, reaching an all-time high of 140.58 in March of last year, while highest recorded final settlement was in June. From those levels the index is down over 20%. Many of the components of the index also saw recent highs including corn, crude oil and natural gas.
Regarding those components, Bloomberg announces the target weights for the index each year based on a complex set of criteria to ensure ample liquidity and volume in the underlying futures. There are 25 different futures contracts that are eligible for inclusion. These include contracts on products that trade on the ICE like cotton and sugar, and industrial metals like zinc and nickel. The update for the 2023 index weighting was released in October. It added the base metal lead to the index for the first time. The components of the index are weighted by liquidity and market size, with the largest group being energy at 29.95% followed by grains at 22.64%. The highest-weighted commodity is gold at 14.85% followed by natural gas, crude oil and soybeans.