Understanding the Continuous Commodity Index

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The Continuous Commodity Index has been around since 1957 as a means to track the overall performance of the commodities markets and to offer a way for investors to trade a diversified group of commodities under one contract.

What is the Continuous Commodity Index?

The Continuous Commodity Index (CCI) is a broad grouping of 17 different liquid commodity futures, which is a benchmark of performance for commodities as an investment.

The CCI is one of many revisions of the original CRB Index that has been around since 1957.

The CCIis equally weights 17 commodity futures. Each commodity represents 5.88 percent of the index. Over the years, some commodities have been changed to give a better representation of the overall performance of commodities.

Commodities Included in the Continuous Commodity Index:

Crude Oil : 5.88 %
Heating Oil: 5.88
Natural Gas: 5.88
Energies: 17.64 %

Corn: 5.88 %
Soybeans: 5.88
Wheat: 5.88
Grains: 17.64 %

Lean Hogs: 5.88 %
Live Cattle: 5.88
Livestock: 11.76 %

Coffee: 5.88 %
Cocoa: 5.88
Cotton: 5.88
Orange Juice: 5.88
Sugar: 5.88
Softs: 29.40 %

Copper: 5.88 %
Gold: 5.88
Platinum: 5.88
Silver: 5.88
Metals: 23.52 %

Uses of the Continuous Commodity Index

The CCI is one of the best representations of commodity performance. It includes a diverse group of equally weighted commodities, and one sector does not dominate the index.

Other commodity indexes tend to have an overweighting in energies. The CCI trades on the ICE Futures Exchange where the soft markets trade. Coincidently, they are the most heavily weighted sector at 29.40 percent.

The CCI has two primary purposes. The first is to act as a representation of how well commodities are performing – up or down.

It is similar to how the popular Dow Jones Industrial Average or S&P Index is a barometer for the overall performance of stocks.

The second purpose of the Continuous Commodity Index is that it is a futures contract, where investors or traders can buy or sell a diversified group of commodities. This is much simpler than buying 17 different futures contracts and managing them at the same time.

ETF and ETN Products Are Another Option

The continuous commodity index is a macro representation of the value and price direction of the major raw materials that trade on futures exchanges. There is a strong correlation between commodity prices and the U.S. dollar. The dollar is the world’s reserve currency as it tends to be the most stable means of exchange in the world. Therefore, the dollar is the benchmark pricing mechanism for most commodities around the world. When the dollar appreciates in value against other currencies, commodity prices tend to move lower. When the dollar depreciates against other currencies, commodity prices tend to move higher. It is a good idea to look at the trend of the dollar against the trend in the continuous commodity index to locate any divergence between the currency and commodity markets.

Divergences often lead to the most profitable trading and investment opportunities.

Over recent years, the advent of ETF and ETN products has created many tradeable products that also serve as macro indexes for commodities. There are vehicles trading on the stock market these days that seek to replicate price action in a basket of commodities, a specific commodity sector or an individual commodity. When analyzing commodity markets, the more data and products available to you the better. Make sure you look at as many of these products as possible when making decisions. Look for the most liquid products as they will present the best and most robust picture of market consensus of prices and value. Liquidity is often easy to spot, just look for the products that have the highest net asset values and trade the most volume on a daily basis.

Commodity prices are an important factor when it comes to all asset classes. Rising raw material prices are often a signal of inflationary pressures on the global economy. Falling commodity prices can signal deflation or recession. When monitoring the macroeconomic landscape, commodity prices are an important variable in any investment calculus.