18 Jul

Hedge fund cornering the cocoa market

Apart from the usual options and futures, Euronext LIFFE is also happy to accommodate trading in commodities. It turns out a certain Anthony Ward (50) bought all the cocoa in Europe. Last Friday, his hedge fund Armajaro opted for physical delivery with the expiring July futures. For as little as EUR 800 million you can have all the cocoa stored in warehouses in Amsterdam and in several minor cities such as Antwerp, Felixstowe, Hamburg and Rotterdam. I’m no expert on cocoa beans, or to be specific how long you can preserve the quality of the beans, but Ward sure knows what he’s doing. The ex-Chairman of European Cocoa Association isn’t doing this for the first time in his life.

Press is reporting the “biggest cocoa trade in fourteen years”, but it’s not that special. Back 2002 the same cacao king Anthony Ward bought 202.000 tons, just a little less compared to the current 241.000. At the time his purchase represented 5% of the world market. He made 40 million in 2002 on the trade. Three years ago Ward was quoted as the chocolate guru : “The world’s not going to run out of cocoa, but they’ll have to pay more to get the right beans”. Most press reports refer to the biggest cocoa trade in fourteen years, but haven’t done any more research. The large cocoa trade in 1996 was done by the firm Phibro, amounting 300.000 tons. In charge of the cocoa desk at the time at Phibro, was nobody else than the same Anthony Ward. Phibro lost money on this cocoa trade by the way, and was forced to unwind their positions.

Bad luck for the cacao farmers, as they have already sold their stock and don’t benefit from the price raise. Fairtrade Organizations are eager to use the public tide against financial markets for their cause. There’s good news anyway for us consumers. There’s not much cocoa in the candy bars. The Tony’s Chocolonely slave-free chocolate bars will witness a steady price level.

13 thoughts on “Hedge fund cornering the cocoa market

  1. (yday) Hedge Funds Blamed For Rising Cocoa, Coffee, Bread Prices – Anti-poverty campaigners have called upon the U.K. financial
    regulator to clamp down on speculative trading that leads to food price inflation and threatens both low-income people in Britain and farmers
    in developing countries. The World Development Movement, an anti-poverty campaigning group, said Monday in its latest report that hedge
    funds and banks were behind the latest cocoa price surge, which caused prices to rise by more than 150% over 18 months to a 33-year
    high. “Although poor harvests acted as the initial trigger for price rises in cocoa, the finger is being pointed at hedge funds and big
    investment banks like Goldman Sachs for making the situation much worse by speculating on food,” it said. The recent price rise could force
    some chocolate makers to raise prices and in some cases use less cocoa, it added. The report added that Goldman made significant profits
    by speculating on food. A Goldman Sachs spokesperson said in an email that the report is “horribly misinformed” on a number of fronts,
    adding that the overwhelming majority of its activities in commodity markets is on behalf of clients and that the profit estimates of $1 billion in
    the report were “ludicrously overstated.” (WSJ)

  2. haha .. people looking for scapegoat as usual .. those who make or more importantly might have made profit are deemed as evil .. we would go back to being socialist if they could have it their way ..

  3. There should be a law banning people from selling all their cocoa to people that want to buy it!!!

  4. Cocoa’s Drop Pressures a Big Wager

    Anthony Ward’s huge cocoa bet could be melting away.
    Mr. Ward’s Armajaro Holdings Ltd. shook up the commodities market in July by buying a $1 billion cache of cocoa, enough to make 15 billion Hershey’s milk-chocolate bars. But since Mr. Ward made his audacious bet, cocoa prices have dropped 26%.

    Two hedge funds run by Armajaro, including its CC+ Fund, which focuses on cocoa and coffee, lost about 6% of their value during the first two weeks of August, according to investors who have viewed the returns. And since then, prices have continued to decline, suggesting Mr. Ward could be coming under more pressure.

    It isn’t certain the drop in cocoa is to blame for the recent losses. And some analysts say the recent decline in prices may be short-lived. An Armajaro spokesman declined to comment.

    The funds remained up about 12% on the year through the middle of August, the investors say.

    Mr. Ward, a 50-year-old trader, has gained a level of prominence in the commodities markets, having made big bets on cocoa at least twice before, in 1996 and in 2002.

  5. it wud be interesting reads when glencore n party get listed .. they are such huge centres of profitability ..

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