There have been peaks and troughs in the commodities trade since Roman times. Rhymer Rigby looks at how world events have affected the price of primary goods.
To look at the beginnings of the trade in commodities in Britain is to peer back into Roman times. The Roman conquest of AD43 brought with it a currency, stability, and infrastructure, none of which had previously existed. It also brought the first systematic cultivation of wheat - and the trade in grain. Towards the twilight years of the Roman Empire the currency destabilised, with the result that forward contracts for crops began to appear. These were perhaps the earliest financial instruments, effectively the precursor of today's derivatives.
With the onset of the Dark Ages much of society reverted to a near-subsistence life-style and the trade in the commodities collapsed. Small communities survived, but the larger towns and their markets withered. By the end of the first millennium, however, a commercial revival was well under way. This was largely led by the Vikings whose role as merchants is often forgotten.
In the period after the Norman Conquest, greater political stability led to strong economic growth, which continued up until the time of the Black Death in 1348. The decimation of the rural populace meant that the trade in livestock and foodstuffs shifted to larger market towns, and many village markets closed forever.
With the Renaissance came urban living and a more centralised form of commodity trading. By the 16th century, any market town worth that name could boast an imposing corn exchange or guildhall where commodities were traded, and during the 17th and 18th centuries the forerunners of today's exchanges, the coffee houses, began to emerge.
At around this time, the expansion of the British Empire brought in commodities such as sugar and cotton from the colonies. The rapidly expanding railway network made transportation easier, while the invention of the telegraph and the laying of a transatlantic cable in 1866 linked previously isolated markets. By the close of the century, much of the trade in commodities had moved into futures.
The graph looks at the present century, and covers five major commodities: wheat, wool, sugar, gold, and coal. Its first notable feature is the rise and subsequent fall in prices caused by the first world war. The price of sugar peaked in the early 1920s as a result of supply difficulties and speculation. The Great Depression of the early 1930s saw further significant falls. Later in the decade, a series of severe droughts in the US forced the price of many commodities up again. Sharper rises occured during and after the second world war, mainly as a result of supply restrictions and the prevailing climate of uncertainty. Prices then readjusted, falling throughout the late 1950s and 1960s. There were two main exceptions: the explosion in the price of wool in the early 1950s as a result of a shortage in the US, and a sharp rise in the price of sugar in 1962 in response to the Cuban missile crisis and the subsequent US ban on Cuban imports.
The oil crisis and associated inflation of the 1970s prompted some of the steepest ever rises. After a brief fall, prices rose again on the back of a hike in crude oil. The next fall in prices, in the early 1980s, was influenced by high interest rates which pushed money out of commodities. This decline was compounded by the ensuing global recession, which curtailed the demand for industrial commodities. With increasing supply as the decade wore on, prices continued to fall; it is only in the past few years that they have stabilised, albeit at an historically low level.
The lesson seems clear. While commodities may be a good route to a short-term killing, in the long term their performance has been worse than virtually any other investment. So, go long in pork bellies? You'd be better advised to go elsewhere.