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Investors are increasingly turning their focus to commodities following the downturn in global stock markets. Commodities often outperform shares in times of market volatility, and offer the potential for inflation-beating returns.
Commodity prices are a function of supply and demand, which are, in turn, influenced by factors such as geopolitics, consumer trends, extreme weather, infrastructure, government policies and the health of the economy.
If you’re considering trading in commodities, here are the top 10 best-performing commodities based on price changes over the last year, according to data from the World Bank.
All of these commodities can be bought via UK trading platforms.
Remember that trading in commodities is speculative and your capital is at risk. Commodity prices can be extremely volatile. You might lose some or all of your money.
Invest in a wide variety of commodities
Explore gold, silver, oil, wheat and more on eToro
The price of natural gas has hit a record high over the last year, principally due to supply issues caused by Russia’s invasion of Ukraine. Russian state-owned Gazprom is the largest global producer of natural gas, providing around 40% of the EU’s supplies historically.
Earlier this year, Russia responded to NATO sanctions by cutting off the supply of gas to Gazprom subsidiaries in some EU countries, including an 80% cut to the capacity of the major Nord Stream pipeline.
This comes at a critical time when the EU is trying to build up its stored gas supplies ahead of increased winter demand. EU countries have agreed to voluntarily reduce gas consumption by 15% from August 2022, with the possibility of mandatory cuts if the situation further deteriorates.
Unseasonably high temperatures in Europe and the US have also led to an increase in the demand for natural gas used to power air conditioning systems. The cyclical increase in demand for gas for heating in cold weather is likely to lead to further pressure on short-term gas supplies.
As a result, natural gas prices are forecast to remain elevated for the foreseeable future, according to Trading Economics.
Crude oil is a key raw material for petrol, diesel and petrochemical products and, as such, is one of the most in-demand global commodities. Brent crude (along with West Texas Intermediate) is used as the basis for benchmarking global oil prices, and is produced in the UK and Norway.
Demand for oil is highly correlated with the state of the global economy, as demand for oil used in manufacturing and transportation increases when the economy is booming.
However, the price of crude oil is most affected by global supplies, with the Organisation of the Petroleum Exporting Countries (OPEC) exerting a significant influence. OPEC supplies around 40% of oil globally, and sets production quotas for member countries. If demand for oil falls, OPEC aims to reduce oil production to maintain prices.
The price of oil plummeted during the pandemic as lockdowns took their toll on consumer and industrial demand. However, there has been a subsequent recovery in demand, with the price of Brent crude increasing from $20 per barrel in mid-2020 to its current level of $105.
Although demand for oil could fall if fears of a global economic recession materialise, this may be offset by a potential switch from gas to oil due to disruption of the Nord Stream gas pipeline.
Trading Economics is forecasting a further increase in the price of Brent crude oil to $119 per barrel over the next year.
Cotton prices hit their highest level in more than a decade in May, trading at more than $150 per pound. This represented a trebling in price from the pandemic low of $50.
Cotton is a critical raw material in the manufacture of many textiles. Harmit Singh, chief financial officer of Levi’s, estimates that two pounds of cotton are used to manufacture each pair of Levi’s jeans.
A range of factors have played a role in the price increase in cotton. Demand for textiles increased as economies began to recover from the pandemic and global manufacturing capacity was restored.
On the supply side, the US has recently banned cotton imports from Xinjiang in China due to concerns over forced Uyghur labour. In addition, extreme heat waves and drought have hit cotton crops in the US, the largest global exporter of cotton.
India has suffered similar supply issues due to lack of rainfall and loss of crops due to pests.
Trading Economics predicts that the price of cotton will rise from its current level of $101 per pound to $114 over the next year. Despite the current supply constraints, demand is expected to be subdued due to the global economic slowdown.
The price of wheat has been volatile, rising from $500 (per bushel) in July 2020, to a high of nearly $1,300 in May 2022, before falling by 37% to its current price of $810. Wheat is used in food production, as well as animal feed, with a knock-on impact on the price of milk and meat.
Wheat supplies have been hit by a number of issues over the last year, including droughts in Europe and North America. India, the second largest wheat exporter, banned exports after crops were hit by the hottest weather in over a century.
Ukraine is also a major wheat exporter, with the Russian invasion preventing shipments from Black Sea ports – although the two countries have agreed to work together to enable shipments to be made. Whether this deal will come to fruition is not certain.
Wheat prices are forecast to rise by around 7% to nearly $870 over the next year, according to Trading Economics. Supply restrictions are expected to continue, although this depends whether Ukrainian wheat exports are restored.
Orange juice has also increased in price over the last year, rising from $120 per pound in July 2021 to a high of over $190 in May. It has since fallen by nearly 20% to its current price of $158.
Demand for ‘liquid gold’ increased during the pandemic as consumers looked to high-vitamin products to help boost immunity against covid. This reversed the previous decline in demand due to concerns over the level of sugar in fruit juice.
There were also supply issues, with a 75% reduction in orange crops in Florida due to freezing weather and citrus greening (a disease spread by bugs). Brazil’s orange crops were also hit by drought.
Trading Economics is forecasting the price of orange juice will rise to $175 over the next 12 months, although this will be some way below its recent high.
Nickel has a wide variety of uses, including coins, batteries for hybrid electric vehicles and alloys such as stainless steel.
Of all the commodities on this list, nickel has been the most volatile, with its price more than doubling from $48,000 to over $100,000 on a single day in March as traders took opposing positions over the likely direction of the price.
The London Metal Exchange took the unusual position of suspending trading in nickel and cancelled all contracts. The price fell back to around $30,000 by the end of March, before declining to its current price of $21,500.
The price of nickel is forecast to rise to $27,500 over the next year, according to Trading Economics. However, its price may be dampened by higher production levels and a possible slowdown in demand for battery-powered consumer electronics.
Coffee has also increased in price, recently topping $215 per pound for the first time in more than a decade. The main factor has been the number of extreme weather events reducing coffee crops.
Brazil, one of the leading producers of Arabica beans, suffered the loss of a third of its coffee crops due to freezing weather and drought. The increase in shipping costs during the pandemic has also contributed to price rises.
The impact of the damage to the coffee trees from cold weather will not be evident for a few years. However, a continuation of extreme weather events would create continued supply constraints, with Trading Economics forecasting the price will increase by around 8% to $232 over the next 12 months.
The majority of soybeans are used to make vegetable oil and animal feed, although they are also used in tofu and other protein substitutes.
The price of soybeans hit a decade high of over $1,700 per bushel in May, before falling back to around $1,550.
Brazil and Argentina, the major producers of soybeans, have suffered a 10% fall in crop production due to drought. In addition, Paraguay’s harvest was 50% smaller than last year and there has been disruption to soybean exports from Ukraine.
However, Trading Economics is forecasting that soybean prices will remain broadly flat over the next year. Forecast rain is expected to improve yields in the US midwest, and Brazil and Argentina are expecting crops to return to normal levels.
There has been a modest rise in the price of live cattle from $120 to $137 per pound over the last year, as the closedown of meat processing facilities during the pandemic led to farmers reducing their herd sizes.
The cost of beef has also increased due to increase in the cost of other inputs such as feed, packaging and transportation.
Trading Economics is forecasting a continuation of these trends, with a predicted price increase of around 5% over the coming year.
The price of sugar hit a six-year high of over $20 per pound in April, before falling to its current price of $17. However, this remains some way below its high of $34 in 2010.
High ethanol prices encouraged farmers to switch production from crushed sugar, with reduced supply pushing up sugar prices.
However, Trading Economics predicts a small decrease in the price of sugar to $16 over the next year. Fears of a recession could hit consumer demand, while the supply of crushed sugar is expected to increase as the price of ethanol falls.
Invest in a wide variety of commodities
Explore gold, silver, oil, wheat and more on eToro
Having worked in investment banking for over 20 years, I have turned my skills and experience to writing about all areas of personal finance. My aim is to help people develop the confidence and knowledge to take control of their own finances.