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A significant rebound in Metals & Minerals led to a 2.7 per cent increase for the BMO Financial Group Commodity Price Index in July, with the Index reaching 208.8 (1993 = 100).  Gains were also seen in Oil & Gas and Agriculture, although those sectors experienced more moderate increases compared to Metals. 

“These gains raised the index to a level almost 15 per cent higher than that seen a year ago,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.  “Commodity markets are expected to remain generally buoyant through the remainder of 2006 and much of 2007, though with heightened market volatility.”

The Oil & Gas Index has been relatively steady since February, with rising oil prices being offset by falling prices for natural gas. This pattern continued in July, with a moderate increase of 1.9 per cent leaving the Index slightly below its February level.  “Once again, oil prices ratcheted upwards due to geopolitics, this time reflecting increased violence in the Middle East,” stated Sweet. 

Meanwhile, natural gas prices continued to slide through the first three weeks of July, as temperate weather during much of the month reduced the demand for gas for power generation and reinforced expectations of record-high inventories by the start of the winter. However, the onset of very hot weather in the latter part of the month and in early August provided some lift to natural gas prices.

The Metals & Minerals Index recovered much of the previous month's losses with a broad-based gain of 7.3 per cent in July. Industrial metals were buoyed by falling inventories and supply concerns, while the Middle East conflict and prospects of weakness in the U.S. dollar lifted gold. “Low inventories, limited production growth, and continued solid demand are expected to keep metal prices elevated over the rest of the year,” said Sweet.

The Forest Products Index maintained its flat course since the beginning of the year, with a marginal increase of only 0.2 per cent for the month. The overall lack of direction was the result of offsetting forces at play between pulp & paper and wood products, with higher prices for market pulp and many writing paper grades and lower prices for lumber and structural panels.

Sweet also noted the substantial opposition in Canada to the softwood lumber deal with the U.S.  “Industry support for the deal is tenuous, given some of the more controversial provisions like the early-opting-out option,” he stated.  “The federal government faces an uphill battle in its efforts to rally enough industry support to sign it.”

The Agricultural Index advanced 3.0 per cent in July, moving it nearly 20 per cent higher than the level seen a year ago.  “This month's increase reflected drought and adverse weather conditions in major producing areas and related downward revisions to forecasts of global crop production and stocks,” said Sweet.  “Prices might move higher in the months ahead if unfavourable weather causes supplies to tighten further.”

BMO Commodity Index for July 2006

The full BMO Financial Group Commodity Price Index report for July 2006 is available at www.bmo.com/economic.

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