Commodities Climb to Five-Week High on Bets Demand to Climb as Yuan Gains

Commodity prices climbed to a five- week high after China, the world’s third-biggest economy, eased its currency peg to the dollar, spurring bets that global demand for energy, industrial metals and crops will increase.

The Reuters/Jefferies CRB Index of 19 raw materials rose 0.3 percent to 263.69 in New York. Earlier, the gauge jumped to 267.02, the highest level since May 12. Sugar, livestock and copper led the rally.

China’s yuan rose the most since a July 2005 revaluation after the country’s central bank ended a two-year peg, adopted during the global financial crisis to protect exporters. The MSCI World Index of equities climbed for the 10th straight session on bets that the global economy will expand.

A stronger yuan “is going to make our raw commodities like grains and meats more attractive to Asian buyers,” said Dennis Smith, a senior account executive at Archer Financial Services Inc. in Chicago. “It’s expected to be a positive thing for global growth.”

Sugar surged 3.8 percent, the most since June 8, and copper climbed 2 percent. Cattle futures had the biggest gain in seven weeks, and hogs rose to a five-week high.

The CRB index has advanced 3.5 percent this month. The gauge is down 7 percent this year amid Europe’s sovereign-debt woes.

Ending the currency peg will help curb inflation and shift investment toward service industries from exports and manufacturing, the People’s Bank of China said. The country is the world’s biggest consumer of copper, soybeans, pork and cotton and the second-largest user of corn and sugar.

Boosting Personal Income

“The policy decision that China made over the weekend is an indirect way of increasing people’s income,” said Nicholas Johnson, a commodity portfolio manager at Newport Beach, California-based Pacific Investment Management Co. “Demand for commodities will rise as their purchasing power will increase.”

The World Bank said last week that a stronger currency would help China cool inflation, which accelerated to a 19-month high in May.

“It looks like we’re going to have global growth,” which is “very positive for commodities,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida.

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.