In my post six days ago, I mentioned the fact that investment funds may be one of the reasons why cocoa prices have been higher over the past year. Just two days ago, the Guardian reported the same development. An unnamed U.S. trader is quoted as saying: “The weight of money from investment funds will dictate prices rather than fundamentals (supply/demand).”
So let me get this straight, investment funds, desperatly seeking profitably investments in the wake of the subprime loan debacle, are sinking money into cocoa futures and options. At the same time, people who pay attention to the cocoa market are predicting that the gap between supply and demand will be much narrower for the current season than it was for the last season. Yes, demand is strong, but supply has not fallen behind. New producers are coming online and existing ones are expanding production.
It seems to me that the speculations of investment funds will only exacerbate the fluctuations of cocoa prices and farmers may well again be left holding the bag.