Today's Major Market Move: Cocoa Futures Down 29% For the Year

Deflation is currently back in mode. Declining equity markets, defaulting on debts, slowing GDP growth; these are all hallmarks of a deflationary environment. Another obvious sign is declining commodity prices. Soft commodities in particular are down significantly in 2011 with many of them experiencing declines of over 20%: wheat, oats, cotton, sugar, soybeans and the subject of this post, cocoa. Cocoa LI futures have been the second hardest hit after Cotton with prices down 29% on the year.

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It's hard to find a more specific reason for the decline other than "supply outpacing demand". In this article from Bloomberg Businessweek, an analyst from Macquarie states that they expect prices to increase 13% in the next 2 months as a result of increased demand from Christmas and Easter. I would argue that this is a cyclical demand increase that should already be priced into the market. The custom of buying candy for Christmas and Easter did not just suddenly materialize out of thin air.

Cocoa futures are yet another asset, along with many equity indexes, that are currently at their lows for 2011.

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