Interesting parallels between the cost of shipping dry goods, and the prices of those goods themselves. The caveat is the past 2 years have been somewhat aberrational, and we would need to see much longer history:
Hat tip Bill King
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March 2nd, 2010 at 12:19 pm
Knock yourself out:
http://investmenttools.com/futures/bdi_baltic_dry_index.htm#bdi_crb
March 2nd, 2010 at 12:27 pm
Chicken versus egg.
March 2nd, 2010 at 12:49 pm
“Aberrational” would describe any chart or pattern that you looked at over the last couple of years.
March 2nd, 2010 at 4:27 pm
Don’t forget that 2010 is seeing an unprecedented increase in the available tonnage of dry bulk carriers. Usual number of new vessels is around 25-30 per month; this year its north of 80 per month.
This will make the Baltic Dry less useful as a proxy for “heavy things”
March 2nd, 2010 at 4:43 pm
I’ve been following the two together for almost a decade and the BDI has been a good indicator of where the CRB is headed. There was some concern a few years ago that speculators were jumping in on the fairly small index and causing it to spike more wildly than usual, but that has happened pretty much everywhere. It has been a good indicator of tightness in the shipping market in advance of moves up in the commodity index. And the BDI collapsed in advance of commodity prices in 2008.
Regarding the increase in tonnage, one way to look at that is as typical of the over-capacity in so many parts of the global economy. Despite being a long-term commodity bull I believe that general over-capacity in so many industries will be a drag on commodity prices, so the BDI maintains at least some of its value as an indicator.
By my calculations, based on a longer-term relationship than the above graph, the CRB is slightly overpriced as indicated by the BDI.