Wednesday, April 9, 2008

Commodities Rise Most in 2 Weeks; Oil, Fuel, Corn Hit Records

By Millie Munshi

April 9 (Bloomberg) -- Commodities jumped the most in two weeks as crude oil, gasoline and corn surged to records following U.S. government reports signaling demand for energy and grain still outpacing supplies.

The UBS Bloomberg Constant Maturity Index of 26 commodities rose 2.7 percent to 1,519.18, marking the biggest gain since March 25. The gauge reached a record 1,573.84 on Feb. 29.

Rising food and fuel costs have triggered protests in countries around the world. Crude oil jumped as high as $112.21 a barrel today as a Department of Energy report showed petroleum inventories unexpectedly fell last week. Corn rose to a record $6.16 a bushel as stockpiles dropped more than anticipated.

``Supplies for a lot of different commodities are dwindling as demand has gained globally,'' said Michael Pento, a senior market strategist at Delta Global Advisors in Huntington Beach, California, which manages about $1.5 billion. ``I'm bullish on all commodities.''

Protests may spread as falling supplies caused by crop failures and greater use of grains for biofuels stoke inflation globally, the United Nations Food and Agriculture Organization said today. The World Bank says 33 countries from Mexico to Yemen may face social unrest because of surging food prices.

``We have seen riots around the world, and there's risk that these will spread because of rising prices in countries where 50 percent to 60 percent of incomes go to foods,'' FAO Director General Jacques Diouf said in New Delhi today. ``The problem is serious.''

Rice, Wheat Double

Rice and wheat prices have doubled in the past year. Global food prices jumped 57 percent in March, according to the FOA. Higher energy prices also will stoke inflation, analysts said.

``Demand around the world is not slowing down,'' said Zachary Oxman, a senior trader at Wisdom Financial Inc. in Newport Beach, California. ``The world has proven that even with a slowdown in the U.S., there's still a huge demand for all commodities.''

Commodities also climbed as the dollar slumped, sparking demand for raw materials as a hedge against inflation.

The UBS Bloomberg index has surged 19 percent this year as the dollar dropped 6.4 percent against a weighted basket of the euro, yen, pound and three other major currencies.

The Standard & Poor's 500 Index fell as much as 1 percent today. The equity gauge is down 7.8 percent this year.

``People are still buying commodities in a flight to quality in this inflationary environment,'' Oxman said. ``What do you do when you want to protect your assets from inflation? You buy commodities. Prices will keep going higher from here.''

Dollar's Slump

Consumer prices in the U.S. climbed 4.1 percent last year, the fastest pace since 1990. The Federal Reserve's six interest- rate cuts since September will continue to depress the dollar and spur inflation, Pento of Delta Global Advisors said.

The UBS Bloomberg index rose 13 percent in the first quarter following a six-year rally. Demand in China, the world's fastest-growing major economy, helped trigger the surge.

Gasoline futures, which reflect wholesale costs, rose to a record $2.8228 a gallon. Copper futures closed at $4 a pound, the highest settlement price ever. Gold and silver rose more than 2 percent.

Natural gas topped $10 per million British thermal units and is up 34 percent this year. Rice yesterday jumped to the highest ever, and soybeans rose to a record last month.

Global investments in raw materials rose by more than a fifth in the first quarter to $400 billion, Citigroup Inc. said on April 7. A ``tidal wave of investment flows into commodity markets has further boosted prices,'' the bank said.

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