Financialisation of Commodity Markets

Given the commodity price boom in the 2000s and the large fluctuations in commodity prices in recent years, questions about the factors behind these price developments are of central importance. One is the role of financial investors, especially banks, institutional investors and hedge funds, and their greatly increased presence in commodity derivatives markets. The potential impact of this so-called financialisation of commodity markets on commodity price developments and the question of appropriate regulations are controversially discussed.

Furthermore, the transmission channels of price fluctuations in financial markets for commodities to physical commodity value chains are crucial. Here, the focus is on price setting and the role of international commodity trading houses in order to analyse the impact of financialisation on producers in the Global South.

ÖFSE is working intensively on these issues and their linkages. For example, the research project "Financial Markets and the Commodity Price Boom", which was funded by the Austrian National Bank as part of its anniversary fund, showed that the increasing importance of financial investors in commodity derivative markets - in addition to fundamental and macroeconomic factors - has influenced the prices of coffee, cotton, wheat, crude oil and aluminium and fundamentally changed the structures of commodity markets. These findings also call into question the extent to which commodity derivatives markets still fulfil their real economic functions of price discovery and hedging of price risks. Likewise, the risks posed by financialisation to smallholder farmers in the cotton sector in different countries were highlighted and the influence of different price regulation systems was analysed.

In other research projects ("Financialising commodity markets and global value chains in cocoa and coffee? The role of commodity trading houses" and "The role of commodity prices for socio-ecological transformation" - also financed by the anniversary fund of the Austrian National Bank), international commodity trading houses and their multiple roles and strategies in physical commodity and financial markets for agricultural and mineral commodities are analysed.