Agricultural prices have dropped at a relatively slower pace compared to most others in Scotiabank’s basket of major commodities.
In her monthly commodity price index (CPI) review, released Thursday, Scotia Economics vice-president Patricia Mohr reports that “the shift from ‘boom’ to ‘bust’ in many commodities has been the most rapid in the history of the Scotiabank commodity price index” in data back to 1972.
The bust, she wrote, was “magnified by the exit of hedge and investment funds from commodity market investments, ongoing difficulties in the U.S. and U.K. financial services industry and rapidly worsening global economic conditions” such as China’s substantially slower rate of growth in gross domestic product (GDP).
Month over month, Scotiabank’s CPI dropped 5.5 per cent in December 2008, and ended 2008 down 16.9 per cent year-over-year, Mohr wrote.
“While commodity prices are not yet at a bottom,” she wrote, “the pace of decline is slowing and the forced, indiscriminate asset selling by funds — triggered by investor redemptions and tight credit — appears to be subsiding.
“Many prices are approaching average world cash costs, triggering substantial production cuts, new project deferral and tighter supplies.”
Scotiabank’s oil and gas index led the decline in December, dropping 10.6 per cent month-over-month.
Agricultural prices “inched lower” in December, Mohr wrote, charting a month-over-month decline of just 0.5 per cent, though she said that decline is also “moderating.”
That decline in Scotiabank’s agricultural index followed lower barley and canola prices, which offset “slight gains” in wheat and livestock, Mohr wrote.
The Canadian Wheat Board’s asking export price for No. 1 wheat edged up to US$328 per tonne in December. That’s well below the US$470 of a year ago, but still considerably higher than the US$194 average of 2000-07, Mohr noted.
Among other market influences, the U.S. Department of Agriculture increased its projected global wheat ending stocks to 148.4 million tonnes for 2008-09. That’s still low by historical standards, Mohr wrote, noting ending stocks of 209.5 million tonnes at the start of 2000-01.
While the world’s harvest hit a record in 2007-08, the increase was centred in low-protein feed wheat, especially in Russia and Ukraine, she wrote. As well, she added, the global slowdown is now lowering feed demand, pressuring barley prices.