Scotiabank’s Commodity Price Index, which measures price trends in Canada’s major exports, rose 0.6% in July, after declining in June. The All Items Index is now only 3.9% below a year earlier – a substantial improvement from the -31.9% year-over-year comparison in January 2002, when commodity prices started to recover.

“The Agricultural Index jumped by 8.4% over the previous month as drought in north & central Alberta and Saskatchewan and the U.S. plains drove wheat and canola prices to 3 1/2-year highs and barley prices to almost a 6-year high,” says Patricia Mohr, Vice-President and commodities specialist at Scotiabank. “The surge in grain prices in July more than offset the negative impact of a waning in investment fund interest in some base metals – linked to concerns that the recent stock market slide might slow the recovery in U.S. and global growth – as well as a slight easing in forest products prices.”

While the Oil & Gas Index also fell in July, this decline was temporary, with natural gas prices rebounding in mid-August and West Texas intermediate crude
oil briefly topping US$30 on supply uncertainties, linked to potential U.S. military action against Iraq. The Oil & Gas Index dipped in July as lower natural gas and propane prices more than countered a further gain in light and heavy crude oil prices.

“Despite only a slow recovery in global demand, supply uncertainties have
pushed up prices,” says Mohr. OPEC will consider raising its quota for the fourth quarter by a moderate 0.5-1 million barrels per day when members meet in Osaka on September 19th. However, judging from comments by the Kuwaiti oil minister, a quota increase is only likely if global demand picks up or if prices exceed the US$22-28 target range for OPEC’s oil “basket”. OPEC’s reference price was US$26.77 on August 20th.

The Forest Product Index inched down in July as wood product prices continued to drop and uncoated freesheet paper prices dipped seasonally, just
offsetting further gains in pulp and linerboard prices. Western Spruce-Pine-Fir 2×4 lumber prices softened from US$248 per thousand board feet (mfbm) in
June to US$245 in July and are currently only US$220 – a level below average B.C. interior mill cash costs including U.S. duties.

“On a more positive note, Canadian and U.S. newsprint manufacturers have
invoiced a US$50 per tonne price increase for U.S. markets as of August 1st,”
sayss Mohr. “Though advertising lineage in U.S. newspapers is only slowly recovering, inventories held by mills and consumers across North America are
low, 13% below the 10-year average, supporting the price increase.

The Metal and Mineral Index declined in July as lower prices for copper, aluminium and gold and an end to the surge in steel additives more than offset stronger sulphur prices and a temporary rally in zinc prices. Spot uranium prices also eased slightly late in the month – falling from US$9.90 per pound to US$9.85.