Canada Markets

The Grass is not any Greener ...

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Scotiabank's September report shows the Scotiabank Commodity Price Index falling to more than a 10-year low in August. This chart shows the one-year percent change and the five-year compound annual growth rate for the All-Commodity Price Index as well as for various sub-sectors. The agriculture component has fared well compared to other commodity groups. (DTN graphic by Nick Scalise)

Commodities are not having a particularly good week this week. Debt issues are negatively affecting global commodity giant Glencore this week, parent company of Viterra, which has led to volatile trade in the conpany's stock - down 33% yesterday, while gaining 17% today. Glencore has announced the possible sale of a minority position in its agriculture holdings this week in order to restructure debt.

As well, reports that Cargill will break its hedge fund division into pieces, either to be absorbed into other existing divisions or to be spun into operations owned by employees.

These are just two of the many examples of how the commodity downturn has shaken the global economy. Bloomberg reports today that "the 15-month commodities free-fall is starting to resemble a full-blown crisis." Bloomberg's Commodity Index has fallen 50% since its 2011 high, while one economics firm quoted in the Bloomberg article suggests that commodities may only be in the fourth year of a 20-year "bear super-cycle," with market failures and mothballed projects a critical part of reducing supply.

While the agriculture industry is facing and will face challenges, Scotiabank's Commodity Price Index data released on Monday, which includes data for August, shows the agriculture index falling 12.7% in the past year, the lowest of the commodity group declines which range as high as 56.7% for oil and gas, with the All Commodity Price Index falling 33.3%.

Of the sectors reported, only Forest Products achieved a positive rate of compound growth over the past five years of .2%. Agriculture is reported at second-best at minus .6%, while oil and gas tops losses at minus 13%. The five-year compound growth rate for the All Commodity Price Index was reported at minus 6.9%.

Scotiabank cites seasonal patterns weighing on grains in August, while China's ongoing appetite for grains is a supportive feature. Official import data from China reported that the January through August imports of soybeans total 52.4 mmt, up 9.8% from the same period in 2014. As well, China's wheat imports are forecast to grow slightly in 2015/16 to 2.2 mmt, with Canada's share in the January-through-August period reported at 628,000 mt, up 68% from the same period last year and second only to Australia. China's barley imports in the January-through-August period are reported at 7.426 mmt, up 111% from the previous year, while Canada's share is reported at 830,513 mmt, up 131% from the January-through-August period in 2014.

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