In the current forum discussion, Cam Fitzgerald focuses on coffee’s bear market to provide some lucid insights into the deflationary dynamic at work in the commodity markets. He notes that although the price of coffee beans has collapsed, falling by two-thirds since 2011, Starbucks is still charging the same four bucks for a large latte. This profit-friendly anomaly has held true for many other companies that benefit from a widening spread between commodity prices and end products. It would seem to flout the laws of supply and demand, but Cam says the textbook relationship will reassert itself with a vengeance as consumers become increasingly frugal under the weight of a deepening Great Recession.

From a technical standpoint, his theory looks quite solid. The weekly chart (see inset) implies that a pound of coffee currently trading on NYMEX for $1.03 is about to fall by half. If the futures were in fact to achieve the Hidden Pivot target of 53 cents, that would represent an 83% drop from 2011’s all-time high of $3.08.  Coffee lovers may have something to look forward to, but they should be careful what they wish for, since the implication of coffee beans selling for 50 cents a pound is that the world by then will be chest-deep in a deflation of falling wages, plummeting asset values and significantly lower corporate profits.