Soft commodities are falling

Sugar, Wheat, Coffee, Corn, Soybeans and DJ-UBS Cocoa, YTD, 2013

So where’s the inflation?

As documented in this blog and elsewhere, as one of the policy responses to The Great Recession the United States sharply increased it’s money supply. Generally, as the the supply of money increases so does possibility of inflation. However official metrics of inflation show historically low measures, leading some to suspect governments of manipulating or otherwise suppressing the truth. While manipulation of single indices calculated by government or private organisations is, of course, a possibilityreality (*cough* the LIBOR scandal), controlling prices across entire global markets is something completely different, I would suggest to the point of impossibility.

The term “soft commodities “ refers to agricultural commodities, compared to other commodities such as metals. The chart above shows the year to date returns of six soft commodities, specifically sugar, wheat, coffee, corn, soybeans and cocoa. Clearly with the exception of cocoa all soft commodity prices are declining to a greater or lesser extent. Sugar, for example, is showing a year to date change of -10.26%, or an annualised rate of roughly -53%, while soybeans are falling at an annualised rate of roughly -0.61%. Cocoa is the only commodity series that is increasing at roughly 16% annualised but that is explained away by a forecasted shortage.

Evidence of deflation? We’ll have to see how pronounced these declines are going forward, but they are hardly supportive of inflation.

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