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(October 24, 2007) The global appetite for “stuff” returned in September, driving the Scotiabank Commodity Price Index higher after a summer slump. The index measures the price trends of 32 commodities that Canada exports.

The index crept higher by 0.3%, taking commodity prices higher by 8.5% on a year-over-year basis. Agricultural prices led the September increase, rising by 6.7% in one month, as wheat, barley and canola values soared.

“U.S. wheat stocks at the end of the 2007–08 crop year are expected to plunge to the lowest level since 1948–49 alongside strong exports,” says Patricia Mohr, vice-president, economics, and commodity market specialist at Scotiabank. “However, increasing buyer resistance has moderated prices in the past several weeks.”

Energy prices were also major contributors to the increase, as light crude and propane offset softness in the natural gas segment.

“International oil prices have skyrocketed alongside the perception of limited global supplies,” says Mohr. “Concern that the confrontation between Turkey and Kurdish rebels in Iraq might unsettle ‘geopolitics’ across the Middle East, which pumps one-third of the world’s oil, has added to upward speculative pressure.”

But there was only so much the agriculture and energy sectors could do to lift the overall index, and weak base metal prices limited gains. Even with investors buying gold as a hedge against the U.S. dollar, the overall mineral sector was weak.

“The Fed is likely to cut the funds rate another three times [25 basis points each], while the European Central Bank holds rates steady or nudges rates up,” says Mohr. “In this environment, the U.S. dollar will weaken further, with gold likely to reach $800 US in 2008.”

Scotia predicts that the price of coking coal will rise significantly in 2008, on the revival of the Japanese steel industry.

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Emerging market risks left unchecked

(October 24, 2007) The rush to get a piece of the action in emerging economies has left many Canadian businesses exposed to unmitigated risks, according to a study by Ernst & Young.

Only 46% of Canadian companies say their board is involved in managing these risks. That lags behind the rest of the world, but only slightly, as only 53% of global respondents said the board was involved in managing emerging market risks.

“Canadian companies must develop and implement overarching risk management strategies for their entire organization, starting with leadership,” says Carol Willson, executive director, risk advisory services, Ernst & Young. “Canadian companies investing in emerging markets, such as China, Brazil and India, need to focus on risk exposure, or they will miss business opportunities.”

In the study, Ernst & Young interviewed more than 900 senior executives responsible for risk management in either international headquarters or emerging market operations.

Executives in developed economies were most likely concerned with political risks, at 40% of respondents, while those running companies in emerging markets are worried more about market and competitive risk (41%), and currency (28%).

North American companies are the least likely to have a risk strategy for their emerging markets exposure, with 25% saying they had no strategy in place, while 46% of Europeans and 52% of Far East companies had a plan in place.

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Unity Life outsources admin

(October 24, 2007) Unity Life of Canada has inked an agreement to outsource its full life insurance administration services on its Canada Protection Plan block of business, starting in November.

Services will be provided by TPA Outsourcing Incorporated, including new business and in-force policy administration, claims and agency administration.

“Through arrangements with business outsourcing partners such as TPA Outsourcing Inc., we gain access to best-of-breed support to ensure we meet the service requirements of our specialty distribution partners,” said Anthony Poole, president and CEO of Unity Life. “We are committed to supporting the needs of our distribution partners and policyholders as we continue our growth strategy to become a leading niche player in the Canadian market.”

(10/24/07)