After six straight monthly declines, commodity prices ticked up in October, according to the latest reading from the BMO Capital Markets Commodity Price Index. However, the uncertain global economic picture presents a mixed bag for the year ahead.
BMO’s commodity index, which reflects the prices of 20 key commodities (encompassing energy products, metals, forestry products and agricultural products) rose 0.7% last month.
The modest gain followed a decline that began in March in the wake of Russia’s invasion of Ukraine.
“Commodities are taking a breather following a protracted post-invasion correction,” a research note from BMO said.
“The pause coincides with a break in the upward march of the U.S. dollar after the Fed signaled a slower pace of rate hikes in the coming months.”
Against the backdrop of tighter monetary conditions, BMO Economics now expects global growth to slow from 3.0% in 2022 to 2.3% in 2023, “with at least mild recessions likely in many economies,” the report said.
In the meantime, the conflict in Ukraine continues to hang over commodity markets.
For example, BMO Economics said it expects increased volatility in the energy market in the short term due to efforts to curb Russian oil prices. Agricultural prices are torn between uncertainty surrounding grain exports from Ukraine and slowing global demand, it said.
The forecast for 2023 is for the overall commodity price index to pull back further, but risks to energy prices are tilted to the upside, the note said.
“Beyond the risks related to capping Russian oil prices, OPEC+ could cut output further in response to a weakening global economy,” it said.
Forecasts for crop prices are also higher for 2023. “Although Canada is enjoying a solid harvest this year, estimates of U.S. corn, soybean, and wheat production have been revised lower as the drought has widened,” it said.
However, it also lowered its forecast for aluminum prices in 2023, citing continued growth in global production, and said lumber prices “remain under pressure from residential construction headwinds.”