Mystery Investor Buys a Billion Dollars Worth of European Cocoa
Someone bought ALL the cocoa in Europe, as in a billion dollars worth. Perhaps JP Morgan has finally closed out Bear Stearns' silver manipulation business and is ready to move on to candy bars and body paint?
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.
It is unclear which person, or group of traders, was behind the deal, but it was the largest single cocoa trade for 14 years.
The cocoa beans, which are sitting in warehouses either in The Netherlands, Hamburg, or closer to home in London, Liverpool or Humberside is equivalent to the entire supply of the commodity in Europe, and would fill more than five Titanics. They are worth £658 million.
Analysts said it was very unlikely that a chocolate company, such as Nestle or Kraft, or even their suppliers, would buy such a huge order in one go and that is was probable that one or a number of speculators, possibly hedge funds, had attempted to corner the market. By doing this, they would have control of the entire supply in Europe, forcing the price yet higher.
This is the best part: Andreas Christiansen, president of the German Cocoa Trade Association, said the “hefty” price move was “a mirror of what can be done if people control the physical stock”.
Running out of markets to corner, someone got desperate. On the upside, at least it wasn't Europe's entire supply of Swedish album covers.
Update: Turns out it isn't a mystery after all (h/t Geoff)
When British hedge fund manager Anthony Ward bought about $1-billion (U.S.) worth of cocoa beans last week, there was talk he was trying to corner the cocoa market and fears that chocolate lovers everywhere would face huge price hikes for their favourite treats.
But now it appears that Mr. Ward, dubbed “Choc Finger” by the British press, may have been forced to buy the beans to get out of his own market squeeze.
Analysts believe Mr. Ward ended up on the wrong side of a private hedging arrangement with Swiss chocolate-maker Barry Callebaut AG. As a result, Mr. Ward’s firm, Armajaro Asset Management LLP, had to buy about 241,000 tonnes of beans last Friday on the NYSE Liffe, or London International Financial Futures Exchange.
The purchase was the second-largest ever on the exchange – and it was enough cocoa to make five billion chocolate bars. On Monday, reports surfaced that roughly half the cocoa had been sent off to Barry Callebaut and it is expected that most of the remainder will head to other candy-makers who had similar deals with Armajaro. Mr. Ward declined comment, as did officials at Barry Callebaut.
“It sounds like maybe when they designed that deal they didn’t design it right,” said Sterling Smith, an analyst with Country Hedging Inc. in St. Paul, Minn. “Fewer than 2 per cent of all futures contracts everywhere ever get delivered on. And a hedge fund certainly does not want to take delivery.”