Sunday, July 18, 2010

Speculator Bets Heavy on Higher Cocoa Prices

Friday, the British financier Anthony Ward bought 241,000 tonnes of cocoa beans, reports the UK's Telegraph.

The purchase was enough to move the entire global cocoa market, sending the price to the highest level since 1977, and triggering rumours and intrigue in the City. At first it was unclear who the buyer was.

The transaction, the largest single cocoa trade in 14 years, was carried out by Armajaro Holdings, a hedge fund co-founded by Ward.

He began his career as a motorcycle dispatch rider before becoming a commodities trader specialising in cocoa and coffee.

The cocoa beans from his latest trade are expected to be kept in warehouses in The Netherlands, Hamburg, London, Liverpool or Humberside and are the equivalent of the entire supply of the commodity in Europe.

Cocoa prices rose by 0.7 per cent as a result of the trade to £2,732 per metric tonne – the highest price for cocoa in Europe since 1977. It follows a series of weak harvests in Ghana and the Ivory Coast, the main areas where the crop is grown.

In 2002 Ward made £40 million in two months after making a similar deal. He bought 204,000 tones of cocoa when West Africa was experiencing poor harvests and political instability in the equatorial area.

He then watched the price of cocoa increase from £1,400 a ton to £1,600 a ton.

Cocoa prices have more than doubled since 2007, following increased demand particularly from China and India, forcing chocolate makers to raise prices and in some cases to change recipes to use less cocoa.

Although there are other factors involved, it should be noted that cocoa is a consumer good. It is the type of commodity that you would expect to go up in price during a re-adjustment in the business cycle away from the manipulations of the economy in "boom" periods towards capital goods strength.

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