Commodity Research Bureau (CRB), Chicago, IL,
CRB Commodity Index Report, weekly (copyright).
For more information:
http://www.crbtrader.com
Background and History
The CRB Futures Index was first calculated by Commodity Research Bureau, Inc. in 1957 and made its inaugural appearance in
the 1958 CRB Commodity Year Book.
The Index was originally comprised of 28 commodities, 26 of which were traded on exchanges in the U.S. and Canada, and two cash
markets. It included barley and flaxseed from the Winnipeg exchange; cocoa, coffee “B”, copper, cotton, cottonseed oil, grease wool,
hides, lead, potatoes, rubber, sugar #4, sugar #6, wool tops and zinc from New York exchanges; and corn, eggs, lard, oats, onions, rye,
soybeans, soybean meal, soybean oil and wheat from Chicago exchanges. In addition to those 26 markets, the Index also included the
spot New Orleans cotton and Minneapolis wheat markets which were added to balance some commodities repeated in the Index as
by-products of other commodities.
The original base period was 1947-49, the same as the Bureau of Labor Statistics Spot Market Index.¹This was purposely done to facilitate
easy comparison of both spot and futures indices.
Like the Bureau of Labor Statistics spot index, the CRB Futures Index is calculated to produce an unweighted geometric mean of
the individual commodity price relatives. In other words, a ratio of the current price to the base year average price.
The CRB Futures Index was originally designed to provide dynamic representation of broad trends in overall commodity prices. In
order to ensure that it continued to fulfill that role, its components and formula have been periodically adjusted to reflect changes in market
structure and activity.
In the original calculation, all future deliveries up to a year ahead were averaged to calculate the current price. In 1987, the calculation was
changed to only include deliveries nine months forward. In 1989, all non-cycle months were excluded from the calculation.
The 1995 revision lowers the number of forward deliveries included to those within six months of the current date, up to a maximum of five
delivery months per commodity. However, a minimum of two delivery months must be used to calculate the current price, even if the
second contract is outside of the six month window.
There has also been a continuous adjustment of the individual components used in calculating the Index since the original 28 were chosen
in 1957. All of these changes have been part of the continuing effort of Commodity Research Bureau to keep the CRB Futures Index
“current,” and to ensure that its value provides accurate representation of broad commodity price trends.
Since 1957, there have been nine revisions to Index components. The first was on April 3, 1961, and the latest on December 6, 1995.
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Current Construction and Calculation
The CRB Futures Index can be viewed as a three-dimensional index.² In addition to averaging prices across 17 commodities (two
dimensions), the Index also incorporates an average of prices across time, within each commodity.
The CRB Futures Index is computed using a three-step process:
1) Each of the Indexs 17 component commodities is arithmetically averaged using the prices for all of the designated
contract months which expire on or before the end of the sixth calendar month from the current date, except that:
a.no contract shall be included in the calculation while in delivery;
b.there shall be a minimum of two contract months for each component commodity (adding contracts
beyond the six month window, if necessary);
c.there shall be a maximum of five contract months for each commodity (dropping the most deferred
contracts to remain at five, if necessary).³ The sult is that the Index extends six to seven months into
the future depending on where one is in the current month. For example, live cattles average price on
October 30, 1997 would be computed as follows:
Cattle Average = (Dec. 97 + Feb. 97 + Apr. 98) / 3
Soybeans average price on October 30, 1997 is:
Soybean Average = (Nov. 97 + Jan. 98 + Mar. 98) / 3
2) These 17 component averages are then geometrically averaged by multiplying all of the numbers together and taking the
17th root.
Geometric Average = 17 ÖCrude Avg. * Heating Avg. * …Sugar Avg.
3) The resulting average is divided by 30.7766, the 1967 base-year average for these 17 commodities. That result is then
multiplied by an adjustment factor of .8486. This adjustment factor is necessitated by the nine revisions to the Index since its
inception in 1957. Finally, that result is multiplied by 100 in order to convert the Index into percentage terms:
CRB Futures Index = ((Current Geometric Average / 1967 Geometric Avg. (30.7766) )* .8486) * 100
Arithmetic vs. Geometric Averaging
The CRB Futures Index involves both geometric and arithmetic averaging techniques. Geometric averaging has the statistically
attractive property that successive percentage changes in a components price do not alter that components relative weight in the Index.
Arithmetic averaging, on the other hand, causes the relative weight of a component to increase (or decrease) as that component
appreciates (or depreciates) in value. The implications of these differences in index computation techniques may be seen in Figure 3,
which reflects four different price scenarios. For convenience, assume that the index is comprised of only three components – X, Y, and Z -
and that these components are equally weighted. The base period for each scenario is assumed to be 100.
17 Commodity Components
The CRB Futures Index is widely viewed as a broad measure of overall commodity price trends because of the diverse nature of the
17 commodities of which it is comprised. As a broad measure of commodity price trends it serves as an excellent price measure for
macro-economic analysis. This reflects the fact that a more diverse price index contains more information and, thus, can be used to better
analyze economy-wide market forces.
Equal Weighting
Equal weighting is used for both arithmetic averaging of individual commodity months and for geometric averaging of these 17 commodity
averages. From a pricing point of view, equal weighting is attractive because no single month or commodity has undue impact on the Index.
This makes it harder to manipulate the Index and means that the Index is less subject to the discontinuities associated with temporary
supply and demand imbalances in any one month or commodity.
Intra-Day Reporting of the CRB Futures Index
Values of the underlying CRB Futures Index are computed by Bridge Information Systems, Inc., and disseminated by the New York
Futures Exchange every 15 seconds during the trading day.
Only settlement and last-sale prices are used in the Indexs calculation, bids and offers are not recognized – including limit-bid and
limit-offer price quotes. Where no last-sale price exists, typically in the more deferred contract months, the previous days settlement price
is used. This means that the underlying CRB Futures Index may lag its theoretical value. This tendency to lag is evident at the end
of the day when the Index value is based on the settlement prices of the component commodities, and explains why the underlying
CRB Futures Index often closes at or near the high or low for the day.
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referenced on dataset section Notes (#2)
