Iowa Public Television


Commodity Markets Rally

posted on October 31, 2008

Hello, I'm Mark Pearson. Wall Street displayed signs of stability this week despite a series of downbeat reports on the economy.

According to the Commerce Department, gross domestic product, the broadest measure of economic vitality, fell at an annual rate of 0.3 percent in the 3rd quarter of 2008.

Meanwhile, the Conference Board reported its Consumer Confidence Index fell nearly 40 percent this month to its lowest level in history. Consumer spending, which accounts for more than two-thirds of all domestic economic activity, fell in the third quarter by the largest amount in 28 years.

But on Wall Street, the mood was upbeat. On Tuesday, the Dow Jones Industrial Index posted its second largest single-day point gain in history in anticipation of a cut in interest rates by the Federal Reserve.

As hoped, the Fed cut the rate that banks charge each other for overnight loans to one percent… Some analysts predict further reductions in the days ahead, but the so-called federal funds rate hasn't been lower than one percent in five decades.

The Dow posted back-to-back gains on Thursday and Friday pushing the bellwether index back above 9,300. And the rally also was evident in the commodity markets.

Commodity Markets Rally After falling to contract lows last Friday, commodity prices lit-up this week thanks, in large part, to several crucial financial developments.

The rally began Tuesday night when Chinese banks cut key interest rates. The blaze was stoked as the Federal Reserve cut its interest rates mid-week. More fuel was thrown on the fire as the Federal government infused the first $125 billion into U.S. banks under the massive financial rescue plan.

As the news broke, the commodity markets, which have been tracking with financial markets in recent weeks, responded by moving limit-up on Wednesday. When compared to last week's prices, corn and beans climbed nearly 10 percent in the nearby contracts.

As the week progressed, the effect could be seen in other markets as well. Crude oil rebounded from 17-month lows as stock markets rallied across the globe. And, after suffering more than a 30 percent decline this month, the Goldman Sachs Commodity Index rebounded almost 10 percent, marking its largest rally since 1970.

Despite working with more expensive raw products commodity processors saw an increase in third quarter profits. Kraft Foods, which produces a wide range of goods, posted a 20 percent increase in earnings while cereal-maker Kellogg's saw revenue grow by 10 percent. Both processors are expecting to see even higher profits in the final quarter of the year as families begin to eat at home due to higher food prices.

Tags: agriculture markets news