Commodities Post Biggest Monthly Gain in 32 Years

By Millie Munshi

Sept. 28 (Bloomberg) -- Commodities had the biggest monthly gain in 32 years, led by wheat, crude oil and gold, as the dollar's slump enhanced the appeal of energy, grains and precious metals as a hedge against inflation.

The 19-commodity Reuters/Jefferies CRB Index was up 8.1 percent this month, the most since July 1975. Wheat climbed to a record in September amid a global grain shortfall, boosting corn and soybeans. Oil also hit a record, and gold reached a 27-year high. The Federal Reserve cut borrowing costs to bolster the U.S. economy, sending the dollar tumbling.

``The Fed has signaled pretty clearly that they will answer the problem of a slowing economy with greater liquidity,'' said Chip Hanlon, who manages $1 billion at Delta Global Advisors Inc. in Huntington Beach, California. ``We're in a bullish phase for commodities.''

The CRB Index rose to 333.67 from 308.76 on Aug. 31. Wheat reached a record $9.5125 a bushel today. Crude oil climbed to $83.90 a barrel, the highest ever, on Sept. 20 and approached the record today. Gold rose as high as $752.80 an ounce today, the highest since January 1980.

The dollar fell to a record against a weighted basket of six major currencies, including the euro, yen and pound. The Fed on Sept. 18 cut its benchmark rate by 0.5 percentage point, more than economists forecast, to 4.75 percent in an attempt to shore up an economy threatened by a housing recession.

`Skyrocketing'

The rate cut sparked inflation concerns. Some investors buy commodities to hedge against rising consumer prices, and the falling dollar makes raw materials priced in the U.S. currency cheaper for buyers holding other currencies.

The cut in U.S. borrowing costs will continue to weaken the dollar and lead to ``skyrocketing'' prices for commodities, Jim Rogers, chairman of Beeland Interests Inc., said in an interview this week. He co-founded the Quantum Hedge Fund with George Soros in the 1970s.

Wheat rose today after the U.S. Department of Agriculture said U.S. production and supplies were smaller than analysts expected. Global inventories are poised to decline to the lowest in 26 years.

Wheat futures for December delivery rose 6 cents, or 0.6 percent, to $9.39 a bushel on the Chicago Board of Trade. The price was up 22 percent this month and has more than doubled in the past 12 months.

`New Demand Coming'

``Our favorite of the commodities spectrum are the agricultural commodities,'' Delta Global's Hanlon said. ``The world's grain stocks across the board are very low, and there's a new demand coming.''

Corn was up 15 percent this month, and soybeans gained 14 percent.

Crude oil rose above $83 a barrel today before erasing gains. Oil rallied after the U.S. government reported that consumer spending climbed more than forecast and the dollar fell.

The spending report signaled that the fallout from a weaker job market and collapse in subprime mortgages hasn't yet reached the biggest part of the economy, supporting oil demand.

``We did have some positive economic reports that were supportive, and the dollar's weakness continues to be supportive of commodities across the board,'' said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. ``The momentum is behind this market for sure.''

Refining Margins

Crude-oil futures for November delivery fell $1.22, or 1.5 percent, to $81.66 a barrel on the New York Mercantile Exchange. The price declined as refining margins shrank to their smallest in almost 11 months and heating oil and gasoline tumbled. Oil still gained 10 percent this month.

Gold futures for December delivery rose $10.10, or 1.4 percent, to $750 an ounce on the Comex division of the Nymex. The price was up 11 percent this month.

Gold may surpass $1,000 as supply falls and demand rises from investors and jewelers, Gregory Wilkins, the chief executive officer of Barrick Gold Corp., the world's biggest producer, said today in an interview on CNBC.

``We're in an inflationary cycle, and gold is going to keep being bullish,'' Delta Global's Hanlon said. ``I don't want to see the dollar acting as weak as it is, but I don't see anything that's going to dramatically change that.''

Silver climbed 15 percent this month. Futures for December delivery climbed 27.5 cents, or 2 percent, to $13.92 an ounce today on the Comex.

Global economic expansion, led by China, will continue to bolster demand for raw materials, Hanlon said.

`Voracious New Appetite'

``There's a voracious new appetite for raw materials coming from Asia and the formation of the new middle class,'' Hanlon said. ``The global economy would have to go flat off the cliff before we see demand falling. The outlook for commodities is fabulous.''

Higher commodity prices have benefited seed makers and mining companies. Shares of Monsanto Co., the world's biggest seed producer, have gained 23 percent in September, the biggest monthly gain since the stock began trading in October 2000. The shares gained $1.20, or 1.4 percent, to $85.74 at 4:04 p.m. in New York Stock Exchange composite trading.

Shares of Freeport-McMoRan Copper & Gold Inc., the world's biggest publicly listed copper producer and the owner of the largest gold mine, have gained 20 percent this month, the most since May 2003. The stock dropped $1.91, or 1.8 percent, to $104.89 today.

To contact the reporter on the story: Millie Munshi in New York at mmunshi@bloomberg.net .